The likelihood of more interest rate increases could spur a rush of clients who want to request defined benefit (DB) transfers ahead of a reduction in values.
Following the Bank of England’s (BoE) decision earlier this month to increase rates to 0.5 per cent from 0.25 per cent, there have been reports that this could lead to a drop in transfer values.
The cash equivalent transfer value is the lump sum a pension scheme will offer in exchange for giving up future claims.
Gilt yields, which can be affected by base interest rates, are one of the assumptions actuaries use when calculating transfer values.
Frances Giliker, pension transfer specialist at Church Street Financial Planning, said it was still too early to see the full impact of the rate rise on transfer values, but added that the media could heighten awareness about a future decrease in entitlement.
She cautioned against firms bowing to client pressure. At Church Street Financial Planning, pension specialists do not deal with insistent clients.
Ms Giliker added: “Clients who have done a transfer over the last year would have had the highest transfer values.
“[And although] the reduction in transfer values will form part of the conversation with a client, it should not be the key basis on which an adviser recommends a transfer.”
Commenting on the rate rise, Steve Webb, director of policy at Royal London, said anyone considering a transfer might wish to take impartial advice on the pros and cons “as a matter of urgency, as transfer values were unlikely to remain at [current] high levels”.
Matthew Bird, director at IFA Seer Green, said advisers should remain calm ahead of any surge in DB transfer requests, if people see their transfer values reduce.
Mr Bird said: “It will have an effect and some people may have a shock in the near future.”
Ima Jackson-Obot is a features writer of Financial Adviser
