Final Salary Pensions: Values rise post-Brexit

The value of some final salary pensions have risen dramatically in the aftermath of the UK’s vote to leave the European Union.

Following the Brexit vote on June 23, UK 10-year gilt yields fell to below one per cent for the first time ever, increasing the cost for so called “Defined Benefit” pension schemes to meet their liabilities.

Increasing pressures have led some pension schemes to make eye-watering offers to people to swap future income for a cash lump sum. The transfer valuations of some final salary pension schemes have risen by tens of thousands of pounds in a matter of weeks.

Alan Mellor said: “There are undoubtedly cases where final salary pension values have soared considerably since the Brexit vote and, in a small number of cases, the valuations can be life-changing.

“However, it is critical that people with final salary pension schemes take specialist advice before making any decision to transfer out of their scheme.

“At the moment, there are some startling transfer valuations, but this could quite easily change again by the start of next year.”

The sharp rise in transfer valuations is the result of the dramatic fall in AA-rated corporate bond yields which, in turn, track 15 to 20 year gilt yields.

It is these yields that many final salary schemes use to value their future pension liabilities.

When gilt yields and corporate bond yields decline, the cost to the scheme of meeting future pension promises goes up.

Alan added: “It is not a case that every pension scheme is passing on Brexit bonuses to those choosing to leave their scheme early. Each scheme will carry out its own calculations to determine the valuation they are willing to give a client.”

Anyone with a final salary pension can seek advice by contacting Alan Mellor on 0151 353 1066.