The Bank of England (BoE) has confirmed it has cut the base rate from 4.25 per cent to 4 per cent, although industry experts suggested this will only have a "modest" impact on defined benefit (DB) and defined contribution (DC) pension schemes.

At its meeting ending on 6 August 2025, the BoE's Monetary Policy Committee (MPC) voted by a majority of 5–4 to reduce bank rate by 0.25 percentage points, to 4 per cent, rather than maintaining it at 4.25 per cent.

However, XPS Group partner, Adam Gillespie, said that the cut “won’t move the needle much” for most schemes, noting that long-term UK yields remain the main driver of outcomes.

Given this, Gillespie argued that trustees and sponsors of pension schemes should “remain focused on the bigger picture” of robust long-term funding and risk management, and not “simply the latest rate change”.

For DB schemes, Gillespie said that the effects are likely to be negligible, with many schemes already well-funded and insulated from short-term movements through hedging strategies.

However, he acknowledged that there is a more nuanced picture for DC savers, as lower base rates may reduce returns on cash holdings, although long-term growth continues to depend largely on investment performance.

“Outcomes for those purchasing annuities continue to depend heavily on long-term yields,” he said.

The Monetary Policy Committee’s (MPC) decision to cut rates followed concerns about weak economic growth and inflationary pressures.

Although several pension professionals said the move was “fully expected”, the vote was reportedly on a “knife-edge”, with one member pushing for a larger cut and four voting for no change at all.

Commenting on the rate decision, LCP investment team principal, Anais Caldwell-Jones, said: “Today’s outcome underscores the MPC’s delicate balancing act, offering modest support to the economy while reinforcing their ‘gradual and careful’ message.

“The MPC finds itself trying to navigate through an undesirable mix of weak growth and stubborn price pressures.”

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