IFA Newsletter February 2023

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.

What’s happening now?

So far, in late 2022 and early 2023, we are starting to see values stabilise and even some small increases again upon recalculation. We are monitoring transfer values constantly and in January this year, they were on average higher than the last 6 months.

What’s going to happen in the future?

Unless interest rates and gilt yields 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 and, of course, gradually increasing in line with their benefits increasing with inflation in deferment.

How might this affect clients?

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 such, 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. So overall, if you have a client that is considering a transfer now, and has good reasons for doing so, we would still advise you to refer them to us and at least receive Abridged Advice which is of course free and a good chance for a client to speak to an advisor about the merits of their proposed transfer.

Following our recent joint seminar with Royal London at their London office, we are currently investigating a number of further venues up and down the UK for later this year.

Further details will follow in due course, however if you have a particular area that you would like us to visit please e-mail events@groveps.co.uk with your suggestions.

We have had quite a few IFA’s recently ask us whether we can still help a client with a relatively small transfer value e.g. around £30,000 – £80,000, if they refer them direct to us – and the simple answer is ‘yes’. We appreciate that these smaller size funds are unlikely to be feasible for you to assist through the transfer process with no scope for us to facilitate an initial fee, but equally you do not wish to leave the client without any help.

In these circumstances, you can refer the client direct to us; of course, this would mean you would not have an input in the chosen provider/investment or receive regular updates etc. However, with the client’s agreement, you could request a switch of agency back to you once the transfer has completed and agree an ongoing fee direct with the client. We would not require you to complete our Factfind or Case submission checklist; this would be completed by us directly with the client.

Like the vast majority of UK regulated financial advisers, we don’t have ‘passporting’ permissions with any overseas country, and as such, we cannot provide advice to any overseas based clients. This includes any individual that works overseas or spends the majority of their time overseas.

Of course, in some cases, clients may spend part of their time in both the UK and overseas – in this circumstance, you would need to send us details of their status to assess whether we can help – in particular whether they are ‘habitually resident’ in the UK. Ultimately, they would need to, at the very least, have a permanent address in the UK, spend a considerable proportion of their time living or where applicable working in the UK and pass UK money-laundering checks in order for us to be able to potentially help them.

We have recently updated our website Defined Benefit Pension Transfer Service for IFA’s  to make it more user friendly and to provide in-depth information both for IFAs and potential clients.

You will find FAQs which have been tailored to answer our commonly asked queries, meet the team where you will be able to put a name to a face for certain members of staff within Grove including our IFA Liaison team, Advisors and many more.