Transfer Values For Final Salary Pensions Soar To New Highs
Final Salary Pensions have been experiencing difficulty for many years due to how expensive they are to run and maintain. However, even more so recently due to the crisis we are all currently facing.
With the coronavirus shutdown wreaking havoc on companies and stock markets around the world, the total deficit of the UK’s 5,422 defined-benefit schemes increased to £135.9bn at the end of March, up from £124.6bn at the end of February, according to the latest data from the Pension Protection Fund
Defined Benefit (DB) or Final Salary UK pension schemes were once referred to as gold plated certainties, but times have changed, and whilst they still offer excellent retirement security for millions, many schemes are also heavily in deficit, meaning the schemes cannot fulfil their “promised” benefits to pension holders without injections of cash from the companies who run them.
This has long created a funding issue unpopular with shareholder’s but to which companies are contractually obligated. For many years the trustees of many of these DB schemes have offered inflated Transfer Values to pension holders who wish to exit the scheme and move their funds to Personal Pensions, SIPP’s or QROPS arrangements.
Now could well be the best time ever to explore options around exiting or transferring these DB pensions as interest rates hit historic lows. Since the creation of DB pension schemes, valuations have been based around the 15 year UK gilt (or treasury) yield. With this also at historic lows the cost of providing a ‘promised’ pension amount has soared. This combined with a strong desire to rid company balance sheets of the (often significant) liability of their, now closed DB scheme, has led to a perfect storm for pension holders.
Values being offered to transfer to a private arrangement are at the highest levels ever seen in many cases and there has been no better time to consider an in depth evaluation of options for those with these types of pension arrangement. Whilst pension trustees do have discretion over how they calculate these values, an increase in the 15 year gilt rate could quickly see these transfer values reduce. We have recently seen multiples as high as 50 times members promised annual income.
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For further details about transferring your pensions you may find the UK Governments pension web site useful. https://www.pensionwise.gov.uk/en