Defined Benefit Pension Transfer Values 2023

This is a question a lot of people are asking at the moment because most have seen their own transfer values reduce from where they were a year ago.

It’s important, however, to add some context.

Following a prolonged and unprecedented period of low interest rates, average transfer values hit a ‘peak’ in December 2021 and early 2022. However, from the early months of 2022 we have seen values initially level out and then in most cases drop – in some cases quite considerably, particularly following the ‘Liz Truss’ budget in September 2022.

So far, in late 2022 and early 2023, we are starting to see values stabilise and even some small increases again upon recalculation.

Unless interest rates fall significantly (which appears very unlikely), the chances of transfer values getting back to their peak of late 2021 are very remote – even in the very long term.

We have moved out of the period of virtually zero interest rates and minimal inflation, into a period where inflation is going to be much higher, and the corresponding interest rates will be much higher too. This will lead to transfer values stabilising where they currently are.

A transfer value is meant to be, by definition, a fair reflection of the potential cost of buying the same level of income as the current defined benefit scheme would have provided. Despite the falls, because pension annuity rates have also increased, a transfer may not necessarily be ‘poor value’ even where it has reduced compared to its previously high point.

As already described, current values seem to have stabilised and are not going to be increasing for a very long time. The fact that they are lower than they were in early 2022 has little bearing on the suitability of a transfer.

Additionally, transferring any defined benefit pension is considered high risk and is only likely to be suitable for a small number of people; for example, those needing greater ‘control’ of their benefits, flexibility in how and when they are taken, and finally the decision of who might benefit in the event of their death.

Ultimately, this is an individual consideration, and the suitability of a transfer is not dependent on a previous and no-longer available value, but the current merits of the value of the transfer compared to the scheme, along with the importance of the objectives set against personal circumstances.