The Cosmic Watchdog

The value of a final salary pension transfer fell to its lowest month-end value, according to a pensions expert.

An index tracking the value of pensions found that the value of the average final salary pension savings pot fell by five percent, from £153,000 to £146,000, between November and December.

XPS Group, a specialist pension consultant which compiles the Transfer Value Index, said a sharp rise in gilt yields towards the end of the year, along with lower inflation, meant someone wanting to cash in their final salary scheme would get less for their money.

Pension transfers, when someone in a final salary scheme requests to cash in their pension, have grown in popularity since the introduction of Pensions Freedoms.

Final salary schemes tend to be more generous than other types of workplace pension, but they can be less flexible, for example you cannot withdraw lump sums in addition to your 25 percent tax free cash.

After pensions freedoms, more people chose to cash in their final salary pension, but in the last few years, they have been a less popular option, with transfer values still lower after the gilt yield crisis following the Liz Truss mini-budget in late 2022.

Helen Cavanagh, Senior Consultant, XPS Group, said: “Significant increases in gilt yields in the last month of 2024 brought the Transfer Value Index down to the lowest month-end value since the Index began. After a relatively stable year, gilt yields have reached levels not seen since the early 2000s, causing a decline in transfer values over December.

“Despite this downturn, the overall level of transfer activity remained notably stable over the course of the year, showing minimal fluctuation month to month. Whilst overall transfer volumes are down, we believe many members still view this as a valuable option when planning for their retirement arrangements.”

If you are worried about your pension, you can get a free appointment via the government’s Pension Wise service.

Defined benefit pensions, also called final salary or gold-plated pensions, offer an income for life, but some people would rather give up their defined benefit pension rights in exchange for a cash value.

This cash value can be used to buy another type of pension, which means the money stays invested but can also be accessed as a lump sum.

If you’re considering transferring your defined benefit pension, you should seek regulated financial advice.

A regulated financial adviser will look at your specific needs and help you understand how a transfer will or won’t fit in with your stated objectives, overall retirement plan and your long-term well-being.

Be aware that financial advisers’ normal starting point is that it won’t be in most people’s best interests to give up their defined benefit pension for a cash equivalent. But there are times when it can make sense, depending on your individual circumstances.

To help you understand the advantages and disadvantages of transferring, based on your specific needs, it is beneficial (and often required by law) to seek regulated financial advice.