{"id":8582,"date":"2022-07-28T16:10:34","date_gmt":"2022-07-28T15:10:34","guid":{"rendered":"https:\/\/www.2020financial.co.uk\/?p=8582"},"modified":"2023-08-03T11:54:25","modified_gmt":"2023-08-03T10:54:25","slug":"why-are-pension-transfer-values-falling","status":"publish","type":"post","link":"https:\/\/www.2020financial.co.uk\/why-are-pension-transfer-values-falling\/","title":{"rendered":"Why are pension transfer values falling?"},"content":{"rendered":"\n<p>March 2023, saw defined benefit pension transfer values fall to their lowest month-end level since 2016,  far below the record highs we saw in December 2021. And despite some small positive fluctuations, there&#8217;s no immediate sign of recovery, with transfer values continuing to fall in the second quarter of 2023.<\/p>\n\n\n\n<p><strong>Whilst many factors affect defined benefit pension transfer values, <strong>the climbing interest rate<\/strong> is<\/strong> <strong>the main factor driving the sudden fall in transfer values in 2023.&nbsp;<\/strong><\/p>\n\n\n\n<p>The ultra-low interest rates fuelling soaring UK transfer values from 2018 to 2021 have now gone. After sitting at 0.1% for much of 2021,&nbsp; the Bank of England has conducted a number of Interest rate rises. UK interest rates now sit at a 15-year high as the Bank of England attempts to reduce stubborn inflation which remains well above the UK target inflation rate.<\/p>\n\n\n\n<p>The rising interest rates, coupled with other market pressures (both global and in the UK) have affected transfer values, and we have seen massive falls across the board.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">CETV values 2023<\/h2>\n\n\n\n<p>Cash equivalent Transfer have continued to fall throughout 2023. From record highs in December 2021, CETV values saw new record lows in March 2023, and although there&#8217;s been some recovery, we&#8217;re nowhere near the values we saw at the end of 2021.<\/p>\n\n\n\n<p>In June 2023, the <a href=\"https:\/\/www.xpsgroup.com\/news-views\/press-releases\/transfer-value-index-falls-lowest-month-end-level-2016\/\" target=\"_blank\" rel=\"noopener\">XPS pension transfer value index<\/a> puts the estimated cash transfer value of a 64-year-old member with a pension of \u00a310,000 a year at \u00a3162,000, down from \u00a3258,926 on 1st Jan 2022.<\/p>\n\n\n\n<p>The falling transfer values appear to be affecting people across the board, although with <a href=\"https:\/\/www.bbc.co.uk\/news\/live\/business-66386519\" target=\"_blank\" rel=\"noopener\">Interest rates hitting 15-year highs in Aug 2023 <\/a>despite falling inflation, there is a hope that the future may bring better news for those wanting to transfer their DB pension.<\/p>\n\n\n\n<div class=\"tableauPlaceholder\" id=\"viz1659020217494\" style=\"position: relative\"><noscript><a href=\"https:\/\/www.xpsgroup.com\/\" target=\"_blank\" rel=\"noopener\"><img decoding=\"async\" alt=\"Transfer Value Dash \" src=\"https:\/\/public.tableau.com\/static\/images\/Tr\/TransferWatchValuebeta\/TransferValueDash\/1_rss.png\" style=\"border: none\"><\/a><\/noscript><object class=\"tableauViz\" style=\"display:none;\"><param name=\"host_url\" value=\"https%3A%2F%2Fpublic.tableau.com%2F\"> <param name=\"embed_code_version\" value=\"3\"> <param name=\"site_root\" value=\"\"><param name=\"name\" value=\"TransferWatchValuebeta\/TransferValueDash\"><param name=\"tabs\" value=\"no\"><param name=\"toolbar\" value=\"yes\"><param name=\"static_image\" value=\"https:\/\/public.tableau.com\/static\/images\/Tr\/TransferWatchValuebeta\/TransferValueDash\/1.png\"> <param name=\"animate_transition\" value=\"yes\"><param name=\"display_static_image\" value=\"yes\"><param name=\"display_spinner\" value=\"yes\"><param name=\"display_overlay\" value=\"yes\"><param name=\"display_count\" value=\"yes\"><param name=\"language\" value=\"en-GB\"><\/object><\/div>                <script type=\"text\/javascript\">                    var divElement = document.getElementById('viz1659020217494');                    var vizElement = divElement.getElementsByTagName('object')[0];                    if ( divElement.offsetWidth > 800 ) { vizElement.style.width='100%';vizElement.style.height=(divElement.offsetWidth*0.75)+'px';} else if ( divElement.offsetWidth > 500 ) { vizElement.style.width='100%';vizElement.style.height=(divElement.offsetWidth*0.75)+'px';} else { vizElement.style.width='100%';vizElement.style.height='727px';}                     var scriptElement = document.createElement('script');                    scriptElement.src = 'https:\/\/public.tableau.com\/javascripts\/api\/viz_v1.js';                    vizElement.parentNode.insertBefore(scriptElement, vizElement);                <\/script>\n\n\n\n<h2 class=\"wp-block-heading\">What factors affect pension transfer values&nbsp;<\/h2>\n\n\n\n<p>According to consultancy firm <a href=\"https:\/\/international-adviser.com\/retirees-urged-to-not-rush-into-a-pension-transfer\/\" target=\"_blank\" rel=\"noopener\">LCP<\/a>, two key factors affecting pension transfer values are<\/p>\n\n\n\n<ul>\n<li>The \u2018generosity\u2019 of the scheme \u2013 if schemes are de-risking their investments, they are more likely to offer a higher value; and<\/li>\n\n\n\n<li>Members\u2019 longevity predictions &#8211; the longer its members live, the more costly the scheme is to run and transfer values tend to be more generous.<\/li>\n<\/ul>\n\n\n\n<p>It could be that the <a href=\"https:\/\/www.bbc.co.uk\/news\/health-58659717\" target=\"_blank\" rel=\"noopener\">long-term impact on life expectancy<\/a> due to the covid-19 pandemic and related health crises could also play a part in reducing transfer values, although, in the UK, this is expected to be reversed in the coming years.<\/p>\n\n\n\n<p>Several other factors can also affect pension transfer values both positively and negatively, including:<\/p>\n\n\n\n<ul>\n<li>Interest rates&nbsp;<\/li>\n\n\n\n<li>Inflation levels&nbsp;<\/li>\n\n\n\n<li>Gilt yields &amp; stock market activity<\/li>\n\n\n\n<li>Member\u2019s age in relation to scheme retirement age and&nbsp;<\/li>\n\n\n\n<li>Scheme funding position&nbsp;<\/li>\n<\/ul>\n\n\n\n<p><a href=\"https:\/\/www.2020financial.co.uk\/what-is-a-good-cash-equivalent-transfer-value\/\">Read more: What\u2019s a good CETV?<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Do transfer values increase with age?<\/h2>\n\n\n\n<p>It\u2019s worth noting that pension transfer values tend to increase closer to your scheme\u2019s retirement age.<\/p>\n\n\n\n<p><strong>Research published by <\/strong><a href=\"https:\/\/www.royallondon.com\/siteassets\/site-docs\/media-centre\/policy-papers\/fcas-transfervaluecomparatorslcproyallondonoct18.pdf\" target=\"_blank\" rel=\"noopener\"><strong>Royal London and LCP<\/strong><\/a><strong> has shown that the relative value of transfer values tend to rise the closer members are to retirement.<\/strong><\/p>\n\n\n\n<p>The graphs below show that on average those 10 years away from retirement are more likely to have transfer values with a lower comparative value than those closer to retirement.&nbsp; I.e. <em>the closer you are to retirement, the closer your transfer value will be to the true market value of your pension.<\/em><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"707\" height=\"403\" src=\"https:\/\/www.2020financial.co.uk\/app\/uploads\/2020\/05\/fspt-graph1.png\" alt=\"Transfer value as a percentage of TVC replacement cost\" class=\"wp-image-5665\" srcset=\"https:\/\/www.2020financial.co.uk\/app\/uploads\/2020\/05\/fspt-graph1.png 707w, https:\/\/www.2020financial.co.uk\/app\/uploads\/2020\/05\/fspt-graph1-300x171.png 300w, https:\/\/www.2020financial.co.uk\/app\/uploads\/2020\/05\/fspt-graph1-200x114.png 200w, https:\/\/www.2020financial.co.uk\/app\/uploads\/2020\/05\/fspt-graph1-400x228.png 400w, https:\/\/www.2020financial.co.uk\/app\/uploads\/2020\/05\/fspt-graph1-600x342.png 600w\" sizes=\"(max-width: 707px) 100vw, 707px\" \/><\/figure>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"621\" height=\"413\" src=\"https:\/\/www.2020financial.co.uk\/app\/uploads\/2020\/05\/fspt-graph2.png\" alt=\"CETV DB Transfer values rise the closer you are to retirement\" class=\"wp-image-5664\" srcset=\"https:\/\/www.2020financial.co.uk\/app\/uploads\/2020\/05\/fspt-graph2.png 621w, https:\/\/www.2020financial.co.uk\/app\/uploads\/2020\/05\/fspt-graph2-300x200.png 300w, https:\/\/www.2020financial.co.uk\/app\/uploads\/2020\/05\/fspt-graph2-200x133.png 200w, https:\/\/www.2020financial.co.uk\/app\/uploads\/2020\/05\/fspt-graph2-400x266.png 400w, https:\/\/www.2020financial.co.uk\/app\/uploads\/2020\/05\/fspt-graph2-600x399.png 600w\" sizes=\"(max-width: 621px) 100vw, 621px\" \/><\/figure>\n\n\n\n<p>Typically, the guidance is to avoid transferring out of your scheme and to stay put if your retirement is still a long way off. If you\u2019re under the age of 50 it\u2019s generally not advisable to consider a transfer as the risks and costs involved can be prohibitive.<\/p>\n\n\n\n<p>Of course, age isn\u2019t the only factor affecting transfer values so it\u2019s not a guarantee of a higher transfer value. It\u2019s worth speaking to a qualified pension transfer specialist for tailored advice. Pension transfer isn\u2019t a one-size fits all affair.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Why are CETVs falling?<\/h2>\n\n\n\n<p>CETVs reached record levels in December 2021, but the extreme inflationary pressures and global stock market volatility paired with rapid interest rate rises have seen CETVs fall steeply to record lows in 2023.<\/p>\n\n\n\n<p>Pension trustees manage pension funds and guarantee members\u2019 pension income (adjusted for inflation) for life. UK inflation rates hit a 40 year high in 2022 and remain stubbornly above the 2% target set by the Bank of England, pushing up the cost of providing pensions.<\/p>\n\n\n\n<p>Whilst transfer values should offer a fair representation of value, Pension trustees\u2019 first priority is securing the health of the pension scheme for its active members. As scheme costs rise, it makes sense that they would seek to discourage people from transferring out by offering falling CETVs.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Advice for people considering a transfer&nbsp;<\/h2>\n\n\n\n<p>Pension Transfer Specialist Simon Garber says &#8211; \u201cMost people I speak to have the luxury of time, they don\u2019t need to make an immediate decision. Markets are cyclical, we might be experiencing a painful economic time now, but it won\u2019t last forever.\u201d&nbsp;<\/p>\n\n\n\n<p>He reminds people&nbsp;<\/p>\n\n\n\n<p><strong>\u201cif your CETV has fallen, it\u2019s only your transfer value that has fallen; the value of your pension hasn\u2019t fallen at all. In fact, your pension is adjusted for inflation, so all the time you\u2019re in the scheme, the value of your pension is increasing even if your transfer value isn\u2019t. If you opt to transfer now, you might crystalise a loss that you could otherwise avoid by being patient.\u201d<\/strong><\/p>\n\n\n\n<p><\/p>\n\n\n\n<p>Don\u2019t make a panicked decision to transfer based on the fear your transfer value may fall further still in the future. If you\u2019re concerned about your options, the best advice is to seek professional advice from a Qualified Pension Transfer Specialist.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Speak to a Pension Transfer Specialist<\/h2>\n\n\n\n<p>We offer a free, no-obligation introductory call with our Pension Transfer Specialist, they can signpost you to useful information and explain our pension transfer process. <a href=\"https:\/\/www.2020financial.co.uk\/appointment-booking\/\" data-type=\"page\" data-id=\"4287\">Book your free call today.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>March 2023, saw defined benefit pension transfer values fall to their lowest month-end level since 2016, far below the record highs we saw in December 2021. And despite some small positive fluctuations, there&#8217;s no immediate sign of recovery, with transfer values continuing to fall in the second quarter of 2023. Whilst many factors affect defined&hellip;<\/p>\n","protected":false},"author":8,"featured_media":8585,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[66],"tags":[],"_links":{"self":[{"href":"https:\/\/www.2020financial.co.uk\/wp-json\/wp\/v2\/posts\/8582"}],"collection":[{"href":"https:\/\/www.2020financial.co.uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.2020financial.co.uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.2020financial.co.uk\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/www.2020financial.co.uk\/wp-json\/wp\/v2\/comments?post=8582"}],"version-history":[{"count":6,"href":"https:\/\/www.2020financial.co.uk\/wp-json\/wp\/v2\/posts\/8582\/revisions"}],"predecessor-version":[{"id":8829,"href":"https:\/\/www.2020financial.co.uk\/wp-json\/wp\/v2\/posts\/8582\/revisions\/8829"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.2020financial.co.uk\/wp-json\/wp\/v2\/media\/8585"}],"wp:attachment":[{"href":"https:\/\/www.2020financial.co.uk\/wp-json\/wp\/v2\/media?parent=8582"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.2020financial.co.uk\/wp-json\/wp\/v2\/categories?post=8582"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.2020financial.co.uk\/wp-json\/wp\/v2\/tags?post=8582"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}