On this, Webb explained that the CETV of a pension scheme is simply a rough estimate of what it costs the pension scheme to fund your future pension.
“That cost falls when interest rates rise, so – assuming we are talking about long-term interest rates – CETVs may drop further if these rate rises look like being sustained, and this could indeed further reduce demand for DB transfers,” Webb said.
On the other hand, for DC savers, Webb noted that it depends what they are invested in and what they plan to do with their money.
“If they are younger and mainly in equities, then a fall in rates may not make much difference. If they are older and have moved into bonds and plan to buy an annuity then although their asset values will have gone down, the annuity rate will tend to go up and the two may cancel each other out,” Webb explained.
“The real losers are those who have moved into bonds but do not plan to buy an annuity – they have simply seen a capital loss,” he added.
In Webb’s view, this is particularly hard on savers in the run-up to retirement or those already in drawdown who do not have much time to change their plans.
“This is a bit of a warning to people not to move too far into bonds in the run-up to retirement unless you are specifically planning to annuitise,” Webb added.
jane.matthews@ft.com
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