**Re: I got a transfer value from my scheme recently**

Dear mercdriver

The amount payable as a transfer value is the current actuarial value of your preserved pension entitlement.

There is a standard basis set down by the Society of Actuaries in Ireland for carrying out such calculations. In broad terms, there are four components to the calculation, as follows:

1. Project forward your pension to your normal retirement age

2. Multiply the projected pension by an annuity factor

3. Discount the result to a present value

4. Apply a market value adjustment

If standard Pensions Act revaluation terms apply to your pension, the rate of future increase currently assumed under the standard basis is 2.5% per annum.

The annuity factor will depend on your gender, your normal retirement age (NRA) and the type of pension you will receive from NRA i.e. whether there is a spouse's pension and whether and by how much the pension will increase in payment. Please note that the annuity factor represents the expected cost to the scheme of providing your pension and is likely to be somewhat lower than the cost of buying a comparable annuity on the open market. Typically, the factor would be somewhere between 9 and 15.

The discount rate specified under the standard transfer value basis is 7% per annum.

The market value adjustment (MVA) reflects current fixed interest and index linked bond yields.

In broad terms, you should expect the transfer value to go up by around 7% from one year to the next. The actual increase will vary depending on changes in the MVA and whether the rate of increase in your preserved pension is more or less than the projected rate of 2.5%. It may also change over time if there is a change in the underlying basis.

The main reason for taking a transfer value would be in the expectation of achieving a higher benefit than leaving the pension where it is. In order for this to happen, you would need to achieve a return net of expenses of approximately 4.5% more than inflation, plus a further margin to cover the difference between the annuity factor used in the transfer value calculation and the annuity rates you will receive on retirement (anyone's guess).

It's up to you decide how difficult or otherwise you expect it to be to achieve investment returns at this level. You might also decide to take a transfer value for other reasons such as administrative convenience or accelerated vesting in your new employer's pension scheme, but such factors would tend to carry more weight in relative terms in cases where the amount available for transfer is relatively small.

I hope this gives a broad picture of how transfer values work. There are some wrinkles that apply in certain cases, but I have left these out in order to avoid confusing what is already quite a complicated subject.

Regards

Homer