Nick Harvey, Investment Consultant at Xafinity Punter Southall Investment Consulting comments:“Today’s decision to maintain the Bank Base Rate at 0.5% was not a surprise, not least after the wobbles in markets earlier this week and the previous comments from the Monetary Policy Committee that any further rises would be at a gradual pace and to a limited extent.
“At the moment, November’s upward move in Bank Base Rate does not feel like it was a turning point in interest rates, and in any case defined benefit pension scheme stakeholders will be conscious that increases in Bank Base Rate in isolation do not necessarily directly lead to increases in long term gilt yields and so may not have a material positive impact on funding issues.
“The flip side of interest rate rises for defined benefit scheme members is that should they increase by more than expected, the record high transfer values that we have seen are likely to come to an end. Pension transfer values as measured by the Xafinity Transfer Value Index remained high during 2017, fluctuating throughout the year but ending the year at £236,000, little changed from the figure of £234,000 at the end of 2016. These figures were relatively high compared to the Index at the end of 2015, which was £203,000.”
Alex Hutton-Mills, Managing Director at Lincoln Pensions commented: “Today’s decision by the MPC to hold interest rates is not surprising given recent events and statements by the Bank on their view of the macroeconomy including, inflation expectations. Many schemes’ funding positions will have suffered from the recent market volatility. The return of market volatility should serve as a strong reminder to trustees and sponsors to consider the overall level of risk in their investment strategies relative to their pension liability promises, strength of their employer covenant, and to develop actionable contingency plans to respond to future market corrections.”
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