Pensions transfers are likely to continue on an upward trajectory in 2018 thanks to baby-boomer demand, Willis Towers Watson predicts.
This is despite an increase in the Bank of England base rate in November, the consultancy says, as it urges schemes to be wary of outflows that could either increase the risk or decrease the growth potential of their investment portfolios.
Willis Towers Watson UK retirement practice head Peter Rowles says: “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.”
Other pension predictions the consultancy is making are for possible changes to the annual and lifetime allowances in place of more significant pension tax reform that will be hard to achieve due to a slim parliamentary majority for the Conservatives.
Willis Towers Watson downplays concerns that an increase in auto-enrolment contributions may lead some employees to reduce their saving levels.
Rowles says: “The low opt-out rates we have seen so far demonstrate that inertia is a powerful force, that people recognise they need to provide for their retirement, and that handing back an employer contribution does not feel like a sensible thing to do.”