Posted on: 11th January 2018
The pensions transfers out of final salary pension schemes.freedoms introduced in 2015 have given rise to a glut of
However, with interest rates set to rise, there are rumours that the golden summer oftransfers is over. We look at why we don’t believe this is the case, and how 2018 can be just as lucrative for pension scheme members as 2017.
Interest Rates AffectTransfer Values
Although higher interest rates will affect values, the impact is not likely to occur immediately this year. This is certainly the view of Sir Steve Webb, director of policy at Royal London and a former pensions minister, who argued in the FT Advisor that the volume of DB transfers “shows no sign of abating” during 2018.
This means that defined benefit scheme members are likely to continue to transfer their pensions to a defined contribution pot, with the transfer values set to remain high.
The decision in November, last year of the Bank of England to increase the base rate from 0.25 per cent to 0.5 per cent led some to believe that defined benefit schemes would start to see a reduction in their liability figures. This could correspondingly lead to lower transfer values being offered to members.
In 2017, transfer values hit an all time high, with some hitting 54 times the annual pension, as reported in the FT advisor in June. Some have postulated that this kind of high is unlikely to be seen again, if interest rates rise. But the indications are that the rise in interest rates will not happen quickly.
The very slow rate that we have seen still hasn’t come into effect, and it is likely that further rises will be slow as well. The consensus amongst advisors is that this is unlikely to have an immediate impact on transfers values this year.
Consumers Continue Transfer Trends
From the evidence we and other advisors, have seen, there is likely to be a significant numbers of employees exiting their final salary pension schemes this year.
Since the introduction of pension freedoms in 2015, many savers have sought to take advantage of the rates and move into defined contribution schemes that give them more freedom, the ability to pass on their next egg to loved ones, and direct access to some of their cash.
According to figures published by Mercer nearly a year ago, as much as £50bn has been pulled from final salary pension schemes since pension freedoms came into effect.
Not a Decision to be Taken Lightly
Despite these astonishing numbers, the decision to transfer out shouldn’t be taken lightly, and a full transfer isn’t always in everyone’s best interest.
If we enter an era of higher inflation, index-linked DB pensions could provide the kind of long-term security that isn’t necessarily available to those with a flexible DCpot.
We have worked with a number of clients who have explored transferring from a final salary scheme. For many there is a real benefit and the opportunity to make a real difference to retirement. For others, a partial transfer is more appropriate, though not all schemes allow this.
Get Professional Advice Before Considering aTransfer
The best advice is to seek independent financial advice before making any big decisions about your financial future.
If you have any questions about transferring from a final salary pension scheme, don’t hesitate to get in touch with us at .