Grove Pension Solutions

IFA Newsletter February 2024

Feb 26, 2024 | Pension News

IFA Newsletter September 2023

Increasing Transfer Values

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.

Increasing Number of Direct-Client Enquiries

Historically, the significant majority of our new DB transfer enquiries – around 4 in 5 – have come from referrals from IFA’s. However, in the latter half of last year we have seen this shift, with more clients approaching us direct to make a DB transfer enquiry, in some cases bypassing their existing IFA. It is always good business sense that you engage with any client that is considering a transfer and if they wish to pursue this option as part of their retirement planning, legacy planning, wealth management etc, that you help them and maintain that relationship. If a client asks you about transferring their DB pension, don’t turn them away, send them to us to assess the viability, after all, you can establish a pretty good understanding at the Abridged Advice stage for no cost.

2024 – The Year Ahead

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 Pension Solutions ‘Real World’ CETV Index

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.

CETV Index

The Grove Pension Solutions CETV ‘Generosity’ Index

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 July 2022.
CETV ‘Generosity’ Index
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