BoE rate change won’t dent pension transfers, expert says

Bank_of_EnglandThe “bonanza” in defined benefit (DB) pension transfers in the UK will continue in 2018 despite the Bank of England’s interest rate increase, according to pensions consultancy Willis Towers Watson.

Pension transfers, which saw record sales on platforms last year, will continue as people take advantage of pension freedoms, the firm said.

In November, the central bank increased the base rate by quarter of percentage point which could make transfer values from DB schemes look less attractive.

Peter Rowles, head of Willis Towers Watson’s UK retirement practice, said: “It could be argued that with interest rates rising and gilt yields improving, schemes will start to see a reduction in their liability figures which could correspondingly lead to lower transfer values being offered to members, reducing the temptation for individuals to transfer out of a secure DB pension.

“But the indications are that interest rates, although rising, will do so slowly and I think this is unlikely to have an immediate impact on transfers in 2018 – we are going to continue seeing significant numbers of employees exiting their defined benefit pensions this year.”

Rowles said that, along with the transfer value quote they could get from their DB scheme, scheme members also considered the opportunity to take a bigger tax-free lump sum from a defined contribution pot, and large numbers were choosing to transfer out of their DB schemes.

The UK’s financial regulator has proposed changes to the advice given over pension transfers as more people gave up protected pensions rights when leaving DB schemes.

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