The value of Defined Benefit (DB transfers) has risen to record levels following the Brexit result of June’s referendum here in the UK.
According to a report conducted by Xafinity, the latest gilt yields have plummeted below 1% for the very first time in history, meaning that the cost of DB transfers meeting their liabilities has risen dramatically, thus increasing their value, too.
But what does this mean for those people who are enrolled in a DB pension – or final salary scheme as it is often known?
The report gives an example of how this surge in value can affect a 64 year old person who has invested in a DB pension scheme. If they are entitled to at least £10,000 a year on their pension, they would be able to transfer £223,000 out from their scheme if they transferred right now.
This is a huge leap from the figures from last year, where the same person in the same circumstances would have been faced with transfer values of £214,000; that’s £9,000 extra in just a single year.
The head of propositions at Xafinity, Paul Darlow, has commented that the rise is due to the cost of the liabilities that DB funds must meet. It’s simply become more expensive to guarantee that these liabilities will be met due to the UK gilts plummeting.
The increase in value can also be attributed to investors taking action and investing their money in Government bonds, which many pension funds are in control of.
It’s not all positive for the DB schemes, though. The value of their transfers also rose as they are calculated by using how much money it will cost to keep those liabilities upheld. On the 30th of June, the value of £223,000 was £2,000 more than it was on the 1st of January 2016 – and a huge £25,000 than it was back in March 2015.
Is This A Good Time to Transfer?
This rise in value may have many people desperate to transfer their funds to take advantage of this current financial news, but is it really a good idea to transfer out?
Mr Darlow commented that even though this was “good news for members looking to take a transfer value of their defined benefits”, he would not necessarily advise people to transfer out of a DB Scheme.
He said that “This is where the view of independent financial advisers will become really important – whether now is a good time to transfer, or whether to wait.”. He also reported that this isn’t “good news for pension schemes themselves” as it could potentially have a negative impact on their financial position.
If you would like to gain some insight into how this latest announcement will affect you and your pension scheme, or simply want to know more about how we can help you here at Burton and Fisher, don’t hesitate to get in touch with our team today. Our team of experts will be more than happy to help you in any way possible.