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During the peak of Covid-19, the value of your CETV increased and perhaps reached its record-high point which you may not have been aware of. Although the value of your CETV is influenced by numerous factors, one significant factor that caused this is the UK government lowering the interest rates to encourage people to spend money to help save the economy.

Fast-forward to today, the UK government has been constantly increasing interest rates, which eventually affects your CETV value. How does this happen? What causes the UK government to increase interest rates from time to time? How do interest rates affect inflation?

Before answering the questions and discussing further, you can watch one of our YouTube videos below, where we discuss this matter from the perspective of a Pension Transfer Specialist.


How Do Interest Rates Affect Inflation?

Currently, we are in a time where central banks such as the Federal Reserve and the Bank of England are raising interest rates. The central banks did this to try to curb the current inflation. How does it work? It’s pretty simple economics. As interest rates rise, the cost of borrowing also increases. This means people have less money and they will buy less products or fewer goods. Hence, the pressure on those goods falls and therefore inflation falls. Obviously, in the opposite situation, you have the opposite effect.

The Current State of the Economy

At the moment, we have a statement from the chair of the FED, Jerome Powell, talking about interest rates, and he expressed that the FED will be continuing to raise interest rates to try and bring inflation down. Unfortunately, raising or decreasing interest rates is one of the biggest economic levers the government has. However, it is important to note that it typically takes around 12 months from when they start pulling that economic lever to see the impact on the inflation.

When they pull this economic lever, the stock markets and the equity markets react instantaneously to that measure. As an example, when Jerome Powell recently made his eight-minute speech talking about how he expects the FED to continue raising interest rates, around 50 billion dollars was wiped from some billionaires’ asset value such as Jeff Bezos and Elon Musk during that eight-minute speech. What really happened over the course of that eight minutes was  people’s perception towards the financial markets changed. All of this is possible because we’re now living in a world where financial markets go up and down on a whim based on information which comes out.

How Do Interest Rates Affect CETV Values?

If you currently have a Final Salary pension scheme or you’re about to obtain your CETVs, you must be aware that since 2022 CETV values have been decreasing. We had clients at the start of the year who obtained their second or even third CETVs because they didn’t take the plunge. Obviously, the value of their CETV dropped over that period of time because they didn’t take action. The reason for this is there is an inverse relationship between interest rates and CETV values. When the interest rates go up, your CETV values go down and vice versa.

Now, the thing that sits in between interest rates and CETV values is actually gilt rate schemes in the UK. Your DB scheme doesn’t go and take the interest rate from the Bank of England or the FED. Normally, your ceding schemes will use the 10-year or the 20-year gilt rate in the UK. The gilt rate is influenced by a couple of factors including information from the market, interest rates, and the fact that the FED have clearly gone on the record that they will keep increasing it.

With all the factors mentioned above, such as the increased interest rates that are coming in the near future, we don’t necessarily see a direct impact straight away on your CETV value. What we can say is, over the course of 2022, 2023, and possibly 2024, we do not see things getting better and we do not see a situation where they’re going to start to decrease the interest rates which would mean your CETV values would be going back up again.

As such, for anyone who has a guaranteed CETV value right now, if you let that one expire and then get a new guaranteed CETV three months or six months from now, it’s probably going to be lower than the amount you’ve been offered now. 

What you need to know about your CETV values

One of the most important things to remember is your CETV value in itself does not affect the suitability of your pension transfer. Any good or qualified Pension Transfer Specialist should not advise you against transferring your Final Salary pension based only on your CETV values.

Before providing you with financial advice, your IFA should be doing a thorough analysis of your current situation. Is it suitable for you to move away from a safeguarded asset? What benefits would you gain from transferring out? What other assets do you have? Who relies on you? Are you married? Are you not married? Do you have dependents? There are many factors that are actually more important than your CETV values.

What you need to remember is, if you’re looking to transfer out your Final Salary pension, don’t wait around for your CETV to increase – it could be a huge waste of your time, and you won’t be able to predict when your CETV value will rise. Instead, why not take the opportunity to invest your asset now and reap the benefits of your hard-earned savings? Waiting for your CETV to increase means that you could be missing out on potential profits, and you could be waiting months or even years for the value of your pension to increase.

So, why wait? Get your money invested now and start to see a returns on your investment while you can. With careful planning and wise investment decisions guided provided by your IFA, you can create a secure and comfortable future for yourself and your family. Don’t wait around for your CETV value to increase – get investing now. Click the through the button on the right side and start to speaking with one of our IFAs on one a free initial consultation call.


Dominic James Murray

My career in financial services began in 2010 during my Bachelor of Science (BSc) Undergraduate degree at Aston University in England. The degree required me to spend a year abroad working with an established organisation.

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