UK Pension CETV Valuation

When someone receives a lump sum from a foreign superannuation fund more than six months after they became an Australian resident, the growth in the foreign superannuation fund during the period they were a resident of Australia is generally taxable.

The ATO generally accepts a Cash Equivalent Transfer Value (‘CETV’) at the time of becoming as Australian resident as part of a tax calculation

Actuarial Support provides estimates of CETVs based on available information. We adjust a recent CETV provided by the pension fund by available information to estimate a CETV at another date. The available information includes the key drivers of the CETV.

Request a UK Pension CETV

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Additional Information Required:

  1. Recent UK Pension Benefit Statement.
  2. Recent UK Pension CETV quotation.

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UK Pension CETV Knowledge and Guidance

The CETV is the amount your UK pension provider will offer you for transferring out of your defined benefit scheme. The Australian Tax Office (‘ATO’) generally accepts CETV as the value of the foreign super fund.

The calculation of the CETV is complex. It represents the expected cost of providing the member’s future pension benefits in the scheme. There are a lot of factors that need to be considered to estimate the CETV:

  • The scheme’s retirement age.
  • Levels of employer and employee contributions.
  • How long you contributed for.
  • Marital status.
  • Age.
  • Life expectancy.
  • Economic factors, in particular expected investment earnings and inflation rates.
  • Investment strategy of the fund.

The motivations and funding position of your pension fund can affect the CETV:

  • Some defined benefit schemes, worried about having the finances to support payouts, increase the CETV as an incentive for members to transfer out.
  • Other funds with insufficient funding can be permitted to reduce CETVs.

There are special rules around determining the CETV for a fund in wind-up.

It is common for defined benefit pension funds to provide members with benefit options. These include:

  • To exchange some pension for a lump sum at retirement.
  • To begin taking the pension earlier or later than normal pension age (which might be subject to a reduction or an increase, respectively, in the amount of pension).
  • To give up some pension in exchange for a higher dependant’s pension on death.

Only those options which would increase the value of benefits may be included within the CETV. Where an option will increase the CETV, the calculation will reflect the likelihood of the option being taken.

When someone receives a lump sum from a foreign superannuation fund more than six months after they became an Australian resident, the growth in the foreign superannuation fund during the period they were a resident of Australia is referred to as ‘applicable fund earnings’ under section 305-70 of the ITAA 1997.

Applicable fund earnings are taxed at a person’s marginal tax rate. If the lump sum is transferred to an Australian super fund, the individual can elect under 305-70 of the ITAA 1997 for the receiving super fund to pay the tax.

Earnings during periods of non-residency are not taxable. Growth in the foreign super fund due to contributions and transfers is not taxable.

  • Value of the foreign super fund on the first date of Australian residency.
  • Value of the foreign super fund on the date of transfer.
  • Dates of any period of non-residency.
  • Value of contributions and transfers into the foreign super fund since the first date of Australian residency. This includes the purchase of additional pensionable service.

The CETV at the time of residency is not readily available. Only the actuaries advising each pension fund can produce the actual CETV that would have been available on any requested calculation date.

Actuarial Support provides estimates of CETVs based on available information. We adjust a recent CETV provided by the pension fund for any available information to produce an estimated CETV on another date. The available information includes the three key drivers of the CETV:

  • Additional contributions and transfers into or out of the Pension Fund.
  • Changes in interest rates and inflation rates. To emphasize this point, between December 2021 and October 2022, interest rate increases in the UK of +3% reduced industry wide CETV’s by circa 40%.
  • Date the CETV is calculated. As the member approaches retirement, the CETV will increase as the discounting adjustments to the future pension payments reduces.