The Transfer Value Comparator (TVC): Understanding the DB Transfer Benchmark

When you receive advice on a defined benefit (DB) pension transfer, your adviser is required by FCA rules to present you with a transfer value comparator (TVC). Introduced from 1 October 2018 under the FCA's policy statement PS18/6, the TVC is a standardised tool designed to help you understand whether the cash equivalent transfer value (CETV) offered by your DB scheme represents fair value compared with the cost of replicating the same income in the open market. This guide explains how the TVC works, what the output means, and how to place it in the context of a broader transfer assessment.

What the TVC is designed to do

Before the TVC was introduced, DB transfer analysis was conducted using the transfer value analysis (TVAS), which compared the CETV with the projected future value of the invested fund. The TVAS was criticised for being forward-looking and assumption-dependent — it told you how the fund might perform under optimistic or pessimistic scenarios, but it did not tell you whether the CETV was a fair starting price.

The TVC addresses this differently: it asks a current-market question. If you had no DB pension at all, how much would you have to pay today to purchase an annuity that provides the same income (indexed in the same way, and with the same survivor benefit) as your DB pension provides? This comparison amount is called the "annuity equivalent."

If the CETV is significantly below the annuity equivalent, you are being offered less than the market cost of replicating your benefits. If the CETV equals or exceeds the annuity equivalent, the scheme is offering fair or enhanced value.

How the annuity equivalent is calculated

The annuity equivalent is calculated using a specific methodology prescribed by the FCA:

1. The adviser takes the projected DB pension at your selected retirement age (including any inflation escalation and spouse's pension terms)
2. An annuity rate for a product matching those terms is obtained from the market — specifically, the best market rate available for a relevant annuity
3. The total cost of purchasing that annuity today is the annuity equivalent

The annuity rate used is the open-market best rate for that specific income profile, applying your age and the scheme's specific terms (CPI or RPI linking, survivor pension percentage, guarantee periods if applicable).

Because annuity rates fluctuate with gilt yields, the annuity equivalent also changes over time. When interest rates are high (as in 2024–26), the annuity equivalent is lower — it is cheaper to purchase a given income — and the CETV is more likely to compare favourably. When interest rates are low, the annuity equivalent is higher, and the CETV may fall further below market value.

Interpreting the output

The TVC presents the result in two ways:

The ratio: The TVC expresses the CETV as a percentage of the annuity equivalent. A ratio above 100% means the CETV exceeds the market cost of replicating the benefits — a good starting position for a transfer, though not sufficient alone to justify it. A ratio below 100% means the CETV falls short of market value, which the FCA treats as a reason to be cautious.

The "cost to replicate" gap: The TVC also shows, in money terms, the difference between the CETV and the annuity equivalent. A gap of £100,000 means you would need £100,000 more than the CETV to replicate the DB income on the open market.

What the TVC does NOT tell you

It is crucial to understand that the TVC is a single input to the transfer assessment, not a complete answer. Specifically, it does not:

Account for investment return: The TVC assumes a risk-free annuity purchase as the benchmark. If your transferred fund can achieve real investment returns above the gilt yield embedded in the annuity rate, the gap between the CETV and annuity equivalent may be bridged by investment performance. However, this introduces investment risk that the DB pension does not carry.

Assess your personal circumstances: The TVC is the same for everyone with the same CETV and DB terms. It does not know whether you have other guaranteed income, what your health is, what your risk tolerance is, or what your estate planning priorities are. These factors are assessed separately in the full suitability analysis.

Reflect scheme-specific factors: The TVC does not capture the covenant of the sponsoring employer, the funding level of the scheme, or the level of Pension Protection Fund (PPF) cover. A well-funded scheme in a financially strong employer is worth more in security terms than the annuity equivalent alone captures.

Account for tax efficiency: The CETV, if invested in a SIPP, can be used to generate tax-free cash (25% PCLS), varying income levels, and potentially IHT-efficient death benefits. These features have value that the TVC benchmark — a simple annuity comparison — does not recognise.

When the TVC ratio is high

A TVC ratio above 100% does not automatically mean you should transfer. It means the scheme is offering you more than the market cost of replicating the income, which is financially attractive in isolation. But the DB income, once transferred, is gone. A large CETV with a high TVC ratio does not change the fundamental question: do you need the flexibility, and can you manage the investment risk?

High TVC ratios tend to occur when schemes are under funding pressure and offer enhanced transfer values to reduce liabilities, when the member has specific health conditions that reduce the value of long-term income, or when gilt yields have risen sharply (reducing the cost of replicating the income by annuity purchase).

When the TVC ratio is low

A low TVC ratio — say, a CETV equal to 70% of the annuity equivalent — means you would need 43% more capital than you are being offered to replicate your benefits in the open market. This is a strong signal that the DB pension is providing substantial value. Transferring in this scenario effectively gives away £30 of guaranteed income value for every £70 received.

Low ratios do not make a transfer impossible — an individual with very poor health, no dependants, and a specific need for capital access might still rationally choose to transfer. But the analysis must explicitly address the value that is being given up.

Enhanced transfer values and the TVC

Where a scheme offers an enhanced transfer value (ETV) — a CETV above the standard actuarial value — the TVC ratio rises accordingly. The FCA requires that the TVC be presented using the actual offered CETV, not the standard value. A high ETV can push the TVC ratio comfortably above 100%, making the transfer financially attractive on a pure cost-to-replicate basis.

ETVs are sometimes offered by employers seeking to reduce their DB scheme liabilities. They carry an element of incentive — the employer benefits from your transfer. This does not make accepting an ETV wrong, but it does mean the decision should be made on your personal merits, with advice, rather than in response to employer pressure.

The TVC in the context of international transfer

For expats considering a transfer to a QROPS or international SIPP, the TVC remains relevant as a benchmark of the transfer value's quality. The adviser must still present the TVC. However, the suitability analysis for an international transfer involves additional layers: the overseas transfer charge (25% unless an exemption applies — since the former EEA/Gibraltar exemption was abolished on 30 October 2024, for most private individuals the only remaining exemption is that the member is resident in the same country as the QROPS at the time of transfer), the tax treatment in the destination jurisdiction, and the currency implications.

Seek advice before drawing conclusions

The TVC is a sophisticated tool, but it is only one piece of a complex puzzle. An apparently favourable TVC ratio does not guarantee a transfer is suitable, and an apparently poor ratio does not automatically mean transfer is wrong for your individual circumstances. This guide explains how the tool works but does not constitute personal financial advice. A full DB transfer assessment requires regulated financial advice from a qualified pension transfer specialist.

How Global Investments Can Help

The FCA-authorised Pension Transfer Specialist we work with is experienced in interpreting TVC outputs alongside the full range of personal circumstances relevant to DB transfer suitability, and provides the regulated advice and written suitability report. For expats considering transfers from DB schemes to international SIPPs or QROPS, Global Investments coordinates the wider cross-border picture — tax treaty implications, overseas transfer charge analysis, and estate planning considerations — around that regulated advice. Contact us for an initial consultation.