DB transfer values jump nearly 3% in July – XPS

Sophe King reports...

Defined benefit (DB) transfer values increased by almost 3% over the course of July, according to the XPS Transfer Value Index.

The firm’s transfer value index increased from £240,800 to £247,400 in July, which XPS said was driven by a reduction in gilt yields over the course of the month.

The rise throughout July followed a month when transfer values fell slightly. The index ended June at a value of £240,800, down slightly from £241,500 at the end of May. XPS said the fall in June was driven by a slight reduction in expectations for future inflation.

XPS’s transfer value 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.

In a separate measurement, through its transfer activity index, XPS also recorded an increase in the number of transfers the administration business processed during July.

The amount of transfers it processed in July would imply an annual equivalent of 0.98% of eligible members, compared to 0.87% in June. Despite the slight increase, XPS said this still remains below the average of 1.13% it has seen over the last 12 months.

‘Record levels’

XPS Pensions Group partner Mark Barlow said the continuing fall in gilt yields is driving DB transfer values towards “record levels”.

He added: “It is only recent slowdowns in life expectancy improvements that have stopped the index hitting record levels this month. However, transfer activity appears to be unaffected, remaining relatively stable at an annual rate just below 1%.

“It is important that pension schemes put in place a process now to ensure their members have access to high quality advice when they need it.”