Defined benefit transfer values reached record highs in August

Defined benefit pensions

Defined benefit transfer values reached record highs in August

In August and continuing into this month we have seen transfer valuations for Defined Benefit schemes break records, with some coming back as high as 45 times the promised annual income offered.

To put that example into perspective and simplify it somewhat. If your scheme was promising £10,000 per year from 65, a transfer value with a multiple of 45 would mean you need to live until 110 in order to receive the same amount of money from that pension when paid as an annual income.

In reality, that case was more the exception than the rule, but with typical transfer values coming back anywhere between 20-35 times, they are high across the board.

The increase was largely driven by a significant fall in gilt yields during August. The return on U.K Gilts is what actuaries use to calculate the required cash equivalent needed for you to maintain the annual income they have promised you, should you move your benefits into a private scheme.

How low are Gilt yields exactly?

10-year Gilt yields are down 72.21% from this time last year and they are currently offering a return of 0.396%.

This daily chart shows you the decrease since June this year:

And the weekly chart puts it even further into perspective:

15-year Gilts are not much better, offering yields of 0.617%. If you compare this to 10 years ago when yields were 4.382%, the difference is stark.

Chart for 15-year Gilt yields since May:

Understanding how this works is important for anyone with a Defined Benefit pension in the U.K. Many people wrongly assume that their valuation will increase consistently over time and therefore wait for what they think will be a higher valuation in the future. In reality, if yields go up, their pension valuation will go down.

As it currently stands, unless yields go into the negative, there really is no better time to request a transfer valuation.

If you do have pensions in the U.K and are considering looking into it, make sure you seek professional advice from a reputable and regulated advisory company.  Do your due diligence on them before proceeding with any changes to ensure you get the best result for you.

For more information on pensions, you can visit the pension section of our website where we have videos explaining the ins-and-outs of the main types of pensions and some of the reasons for transferring. And of course, our own team of pension transfer specialists are at your disposal if you would like to discuss your situation and/or your pensions with us.

A transfer will not be right for everyone, but we can help you understand whether it could be right for you.

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Andrew Hipshon

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