Pension transfer values soar during May

Hannah Godfrey reports...

Defined benefit (DB) transfer values flew close to record highs during May as the number of transfers increased over the month, according to XPS Pension Group’s Transfer Value Index.

The index rose to near-record highs during May but ended the month at £241,500, down slightly from the £242,300 recorded at the end April.

According to XPS, the rise was driven by a fall in government bond yields over the month, which was partially offset by a fall in inflation expectations.

XPS’s index tracks the transfer value that would be provided by a hypothetical DB scheme to a member aged 64 who is entitled to a pension of £10,000 each year, starting at age 65. It increases each year in line with inflation.

The index launched three years ago and has recently been updated to reflect up-to-date life expectancy data, which reduced the index by around 2.5% on 1 May 2019.

XPS’s Transfer Activity Index, meanwhile, monitors how many members are choosing to take their transfer value.

In April, that index showed a slight increase in the number of transfers XPS’s administration business processed during May compared with April. The transfers processed would imply an annual equivalent of 0.94% of eligible members, compared with 0.87% last month.

‘Political uncertainty’

XPS Pensions Group senior consultant Mark Barlow said: “Transfer values continue to run near record highs and, with the current political uncertainty, it doesn’t seem likely that they’ll fall significantly in the near future.

“There’s been a slight increase in members transferring during May. The index seems to be settling at a figure of around 1% of eligible members transferring each year but we will see whether the current high transfer values result in more members taking a transfer in the coming months.”