IFA Newsletter April 2024

April saw average CETV’s back up to around the 2023 average after three months of comparatively lower values, detailed in the CETV index below.

However, once again it is noteworthy that the comparative generosity of CETVs remains fairly high with average CETV’s now over 80% of the TVC.  This is illustrated in the CETV generosity index below.

For the sixth time in a row, the Bank of England has decided to leave interest rates at a steady 5.25%.  However, for the first time, two members of the Monetary Policy Committee (MPC) were in favour of an interest rate cut in light of falling inflation rate. This suggests that a 0.25% cut could be on the horizon, but even with this possibility later in the year, the impact on CETVs is likely to be marginal, with greater rate cuts needed to see any significant impact.

Bank rate maintained at 5.25% – May 2024 | Bank of England

The aggregate surplus of the 5,050 defined benefit (DB) schemes in the Penson Protection Fund (PPF) 7800 Index hit £455.5bn in March.  Many schemes are now considering options for dealing with this excess funding, with some choosing to enhance members benefits, or investigating options for bulk buy-ins or buy outs. 

PPF finds DB surpluses grew by more than £13bn in March (professionalpensions.com)

6th April saw the introduction of the new allowances that have now replaced the previous Lifetime Allowance (LTA) rules, that was an effective ‘cap’ on the amount of money you could have in a pension.

The LSA (Lump Sum Allowance) has introduced a ‘cap’ on the maximum tax free lump sum available, including both PCLS and UFPLS, whilst the LSDBA (Lump Sum and Death Benefit Allowance) is a limit on tax-free payments on death.

The abolition of the LTA is obviously good news for any individual with large pension savings, that might previously have incurred a sizeable tax charge.

Further details can be found here Abolition of the Lifetime Allowance – Scottish Widows Platform

The Grove Pensions Solutions (GPS) CETV Index provides an average CETV based on a £10,000 per year pension.  This is calculated by analysing the actual CETV and benefit value of thousands of ‘real-world’ CETV’s calculated since March 2023.  This is unlike other indexes that use a ‘typical’ CETV based on assumptions

A Transfer Value Comparator (TVC) is the amount a transfer value would need to be at the date of calculation, to match the future benefits from the existing scheme, based on risk free investments. Comparing the TVC against the CETV gives an indication of the relative generosity of the CETV.  For example, if the Transfer Value offered by the scheme matches the TVC (100%), this indicates a generous transfer value.

The following chart is based on analysis of thousands of real CETV’s calculated since March 2023.