Has a high water mark been reached?

The decision by the Bank of England to raise interest rates for the first time in 10 years could mean that the ‘high water mark’ for transfer values of defined benefit schemes has been reached.

As there is a direct link between fixed interest yields and the liabilities of most final salary pensions, any increase in gilt yields will almost certainly lead to a reduction in transfer values.

Although any immediate reductions will likely be quite modest, it’s the direction of travel that’s more important.If this truly is the beginning of a slow return to a ‘normal’ economy, then it is safe to assume that transfer values could reduce significantly in the coming years.Research produced by a leading pension provider shows that a 0.5% increase in gilt yields could equate to a reduction of 10% in transfer values (based on someone aged 55 with a scheme retirement age of 60)

So, although the base rate rise should not be seen as a ‘call to action’, we would definitely recommend that anyone considering a transfer seek advice sooner rather than later.