Boots Pension Linked to Guilts (Government Bonds)

cliffyevans

Dear All,

My Daughter and family now live in Australia. I have power of Attorney over her pensions until I am able to transfer them. One of the pensions is casing me some concern.

The Pension involved is from Boots (the chemist). In 21st Sept 2021 the ‘transfer value’ was listed as £34,650 yet in 10th Aug 2023 value given as £16,797, a big drop. ( some 51.5% over 2 years)

I queried this with Boots and their reply - to quote them

“The cost of providing pensions is closely linked to the price of Government bonds (gilts).  As the price of these gilts has fallen significantly in recent months, so has the cost of providing the benefits. This is then mirrored in the transfer value.  Transfer values have fallen significantly due to these changes in gilt prices.”

So that I may verify what they are saying is correct where may I see a chart of these gilts (government bonds) over this time period?

Ayr_Rage

CETV values have fallen over recent years and Boots are correct in their explanation.

FIREDreamer

cliffyevans said:

Dear All,

My Daughter and family now live in Australia. I have power of Attorney over her pensions until I am able to transfer them. One of the pensions is casing me some concern.

The Pension involved is from Boots (the chemist). In 21st Sept 2021 the ‘transfer value’ was listed as £34,650 yet in 10th Aug 2023 value given as £16,797, a big drop. ( some 51.5% over 2 years)

I queried this with Boots and their reply - to quote them

“The cost of providing pensions is closely linked to the price of Government bonds (gilts).  As the price of these gilts has fallen significantly in recent months, so has the cost of providing the benefits. This is then mirrored in the transfer value.  Transfer values have fallen significantly due to these changes in gilt prices.”

So that I may verify what they are saying is correct where may I see a chart of these gilts (government bonds) over this time period?

These are some examples from Hargreaves Lansdown. Obviously long dated gilts have dropped a lot more than shorter dated ones but this gives you an idea of what has happened recently.

Long Dated Index Linked Gilt

Long Dated Normal Gilt

And here is a 15 year gilt fund which has pretty much halved in value - like your CETV quote.

dunstonh

The Pension involved is from Boots (the chemist). In 21st Sept 2021 the ‘transfer value’ was listed as £34,650 yet in 10th Aug 2023 value given as £16,797, a big drop. ( some 51.5% over 2 years)

That is in line with expectation as Nov 2021 was the peak.

So that I may verify what they are saying is correct where may I see a chart of these gilts (government bonds) over this time period?

It is correct.

Remember that the boots pension is not investment-linked.  It is defined benefits.  However, if you wish to give up those defined benefits, you can ask them to buy you out of the scheme.      They give you a cash equivalent to match the cost of the benefits (hence cash equivalent transfer value - CETV).    That uses gilt yields in the calculation.

After the credit crunch, interest rates went to record lows and that made gilts more attractive to investors.   So, the values boomed but the yields fell.   The low yields pushed CETVs up to record highs from 2009 to 2021.   However, as interest rates and inflation rose, as well as confidence over the BoE and Government and the UK in general,  gilt values dropped and this pushed gilt yields higher.     So, in turn the CETVs fell.

They are now back within their normal historical range.

The period of 2009-2021 was an anomaly created as a result of the credit crunch.  It had unwind at some point.    The CETV from 2021 is the end of the anomaly.  The CETV from 2023 is back to normality.

Marcon

cliffyevans said:

Dear All,

My Daughter and family now live in Australia. I have power of Attorney over her pensions until I am able to transfer them. One of the pensions is casing me some concern.

The Pension involved is from Boots (the chemist). In 21st Sept 2021 the ‘transfer value’ was listed as £34,650 yet in 10th Aug 2023 value given as £16,797, a big drop. ( some 51.5% over 2 years)

I queried this with Boots and their reply - to quote them

“The cost of providing pensions is closely linked to the price of Government bonds (gilts).  As the price of these gilts has fallen significantly in recent months, so has the cost of providing the benefits. This is then mirrored in the transfer value.  Transfer values have fallen significantly due to these changes in gilt prices.”

So that I may verify what they are saying is correct where may I see a chart of these gilts (government bonds) over this time period?

Look on the bright side. As the transfer value is now under £30K (and likely to be so when you get the next quote - the August one is already well and truly out of its guarantee period), your daughter won't need to get regulated financial advice. That would have been a problem for all sorts of reasons, not least the fact she is no longer a UK resident, saving her at least £5K in adviser fees, if she is determined to transfer.

xylophone

Gilts are bonds.   They represent a loan to the government so the promise to pay interest and return the capital at maturity is about as  strong as you can get - if the government  were to default.....well....

It is also possible to buy index linked gilts.

In these circumstances, it is completely understandable that a  scheme which promised to pay a defined pension  that was at least partially index linked would choose to invest a high proportion of its cash in gilts.

The price of gilts varies.

https://www.dmo.gov.uk/responsibilities/gilt-market/about-gilts/#:~:text=Gilt prices change because market,to the capital markets change.

Therefore the cost to the scheme of buying out  a member's rights to receive the pension for life also varies.

You may be interested in

https://www.hymans.co.uk/insights/blogs/blog/boots-investing-100-in-bonds-20-years-on/

and  further de-risking

https://www.pensionsage.com/pa/Boots-completes-4-8bn-buy-in-with-landG.php

L&G itself will also have some portion of its assets in gilts and other high quality bonds.

Incidentally, have you investigated whether or not a transfer to an Australian Scheme will be possible?

https://www.unbiased.co.uk/discover/pensions-retirement/managing-a-pension/can-i-transfer-my-uk-pension-to-australia

QrizB

The Pension involved is from Boots (the chemist). In 21st Sept 2021 the ‘transfer value’ was listed as £34,650 yet in 10th Aug 2023 value given as £16,797, a big drop. ( some 51.5% over 2 years)

What is the pension that the Boots scheme pays out?

If it is expected to pay out eg. £1000 a year for the life of the pensioner, I'd be inclined to leave it alone.

sandsy

While the pension assets might be invested in gilts, the level of the pension itself remains unchanged.

The fact that the value of the investments can move so much is a reminder that if a transfer does go ahead to a DC pension, the new pension is also subject to the vagaries of market movements in the same way - but that in a way that affects the income that can be drawn from it (unlike a DB scheme).

Hoenir

cliffyevans said:

My Daughter and family now live in Australia. I have power of Attorney over her pensions until I am able to transfer them. One of the pensions is casing me some concern.

Why are you looking to transfer the pension? 

cliffyevans

Many thanks to all who have replied. Now need to do some homework.

To Hoenir - pension is in UK, daughter is in Australia . . .

Marcon

cliffyevans said:

Many thanks to all who have replied. Now need to do some homework.

To Hoenir - pension is in UK, daughter is in Australia . . .

UK pension can be paid to Australia...