IFA Newsletter February 2024

In December 2023, for the fourth consecutive month, we have seen average CETV’s increasing, based on the Grove Pensions Solutions (GPS) CETV Index. This is despite the Bank of England base rate remaining at 5.25% since August 2023. Of course, inflation-linked increases to members deferred benefits will have inevitably played a significant part in this increase in CETV’s.

At the same time, there has been a substantial downturn in transfer activity as reported by XPS Transfer Activity Tracker | XPS Pensions Group (xpsgroup.com), whilst 5,000 private sector schemes saw a record ‘surplus’ of £375bn in October last year as reported by PWC UK DB pension schemes urged to consider end-game options as funding reaches unprecedented level (pwc.co.uk).

Taking all of this into account, it is likely that some schemes have now adjusted their underlying factors to boost CETV’s further.

Many are predicting that we will see interest rates fall in the latter part of 2024. However, with inflation remaining stubbornly high and well above the 2% targeted, the consensus amongst many economists is that we are unlikely to see rates fall until the latter part of this year and even by the end of 2025; research firm Capital Economics expects the Bank to lower the base interest rate to 3% by the end of 2025. Projections from Berenberg Bank anticipate that rates will fall to 4% by the end of next year.

However, the Banks own projections are even more cautious, with the latest Monetary Policy report saying that rates are expected to remain around 5.25% until autumn 2024 and then decline gradually to 4.25% by the end of 2026. Bank rate maintained at 5.25% – December 2023 | Bank of England

The clear indication from all of this is that we are unlikely to see significant drops in interest rates, with commensurate increases in CETV’s, for a number of years, whilst a return to record high CETV’s we saw in 2021-2022 now looking almost impossible.

In short, it looks like CETVs have stabilised, in which case, there appears no merit in delaying transfers in the hope a significant increase in values will happen. We are in a new norm, where we will never return to the incredibly high values that we had a year ago.

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 July 2022. This is unlike other indexes that use a ‘typical’ CETV based on assumptions.