What is the TVAS Report?
A TVAS or Transfer Value Analysis report is a tool that Specialised AF7 qualified Financial Advisors in the UK use when carrying out Final Salary / Defined Benefit Pension Transfer Analysis. It used to be an FCA requirement that you had to have one in order to be recommended a transfer.
A TVAS report compares directly the value of the benefits that would be given up from transferring a final salary pension and the cost of an identical annuity purchased through an alternative pension. The TVAS' main priority is to look at what is known as the ‘critical yield’. In laymans terms, the critical yield is the amount your Cash Equivalent Transfer Value (CETV) would have to grow annually in order to build a pension pot sufficient enough to purchase the same annuity at retirement as the DB scheme was offering.
Historically, the yield was the only focus of this report. If the critical yield was low, then the pension was more likely to be recommended for transfer, meeting a low critical yield would be deemed achievable because the previously held benefits could likely be protected over time. The higher the critical yield, the riskier and less likely a Final Salary Pension Transfer would be recommended.
Critical Yields are really important because it showcases the strength of the Final Salary income. Clients have the opportunity to see how generous their guaranteed income is, a like-for-like annuity would could a lot more money and you are reliant on investment growth, which is not guaranteed, to purchase it. It is very rare for a CETV to be large enough to purchase the same guaranteed income that is being given up. However annuities are not the only means of taking income from a pension.
The weakness in a TVAS report lies in its very narrow way of analysing. It only focuses on critical yield and how to match benefits that are being sacrificed. It does not take into consideration the human element, the want, the need or the why; somebody may be looking to transfer their pension and it is not based on the personal circumstances or preferences of that person. It is perfectly possible for a transfer to ‘pass’ the TVAS report test and for a transfer to still not be in that person’s best interests. Which is why the FCA have moved towards the Appropriate Pension Transfer Analysis model.
Why the TVAS is obsolete
A TVAS report used to be the gold standard in deciding whether or not to transfer out of a Final Salary Pension. It used to be an FCA requirement for Advisors to carry out when providing transfer analysis but it has been supeceded by the more comprehensive APTA or Appropriate Pension Transfer Analysis report.
That being said, TVAS definitely still has its place and can be an excellent tool as part of the wider process of deciding whether or not to transfer.
FFCM Managing Partner and Pension Transfer Specialist Altin Meleqi says “A TVAS report is absolutely the best way to highlight the strength of a final salary pension to someone because it gives you real-world values for comparison. Often people do not appreciate the true market value of the benefit they are seeking to give up”. It is not enough on its own to make a recommendation to transfer or not and it won’t give you all of the information you need to make an informed decision.
A Move Towards Appropriate Pension Transfer Analysis (APTA)
Ahead of the publication of the results of their DB reform consultation, the Financial Conduct Authority who govern Financial advisors and pension transfers have issued updated guidance that now requires Pension Transfer Specialists to undertake an ‘appropriate pension transfer analysis’ (APTA) of the client’s options. This would include:
- The amount of money you would need to purchase the same income in a defined contribution or drawdown environment.
- Drawdown options – how long your money would last in drawdown if you took the same amount as your DB Pension income
- Your personal circumstances including:
- Your motivation for moving your DB pension
- Any other investments you may have
- Other pensions or income you might have
- Any other benefits or risks of DB transfer
- Cash flow modelling – how much money will you need in retirement
- Health and life expectancy
- Your goals and actual desired retirement income
- Your other options for achieving your goals (that may not include transferring your final salary pension)
A TVAS report is not the same as a recommendation to transfer
For DB transfers over £30,000, it is a regulatory requirement that you seek financial advice before transferring your pension. Changes to the FCA guidelines now require any advice given to be a ‘personal recommendation’ – this is not simply a box-ticking exercise, your Financial Advisor needs to undertake a full analysis of your situation. It is an in-depth process.
It is important to note that even if you have a TVAS report, it is not the same as a recommendation to transfer your Final Salary Pension. If you are considering a Final Salary Pension Transfer we recommend booking in a free consultation to discuss the advantages and disadvantages along with the process and the costs.