The value of a typical defined benefit (DB) pension member’s entitlement is now at a higher level than average property assets in the UK, according to new analysis by consultancy and actuarial firm Hymans Robertson.
‘The latest Office for National Statistics property price update showed the average property value at the end of February 2020 had fallen again to £230,332,’ says Hymans Robertson partner Calum Cooper.
‘At the same time, the value of the average DB pension pot has continued to rise and now stands at £233,000. So much focus is put on property as an individual’s main asset, so it may be a big surprise for those fortunate enough to have a DB pension that, on average, they appear to be worth more.’
Hymans Robertson’s analysts also conclude that the discrepancy between the two values is likely to rise over the coming months too.
‘While there is much uncertainty, the weight of evidence points towards further falls in residential property values,’ Cooper says.
‘Equities tend to lead the economic cycle while property often lags this, so further declines in property prices could be expected. For pensions, on the other hand, there is evidence that points to long-term government bond yields declining following pandemics, which increases the value of lifetime incomes.’
In the wake of years of debate over DB transfer regulation, the business also warns savers and investors to be wary of scammers trying to tempt them into turning their gold-plated pensions into cash.
‘While this is great news for the 11 million fortunate enough to have a DB pension, it comes with a warning,’ Cooper says.
‘Some people will inevitably become strapped for cash in this Covid-19 world of socio-economic disruption. Given the value of pensions and how much easier they are to access than property in a locked-down world, people could look to them for cash. It is important that this valuable asset is fully understood and not hastily cashed-in.’
The FCA has delayed its decision on whether to ban contingent charging on DB transfers until after the pandemic has passed.
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