DB transfer values hit record high

Hannah Godfrey reports...

Defined benefit (DB) transfer values rose to record highs in August, prompting members to ask for updated transfer value quotes, XPS Pension Group has said.

XPS Pension Group’s transfer value index jumped sharply to an all-time high of £258,200 on 21 August, up from £247,400 at the end of July.

As a result, the group said, it had seen an increase in the number of transfer quotes being requested across some of their schemes. It also claimed some members chose to pay for an updated calculation as transfer values peaked.

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 said the increase was largely driven by a significant fall in gilt yields during August, partially offset by a small fall in inflation expectations.

‘Members investigating their options’

XPS Pensions Group partner Mark Barlow said: “The impacts of recent volatile markets have seen transfer values increase steadily over the last two months, with an all-time high in August.

“The continuing fall in gilt yields has pushed transfer values to new record highs, around 10% higher than they were this time last year. Although there is a lot of uncertainty around the future of the financial markets, an increase in transfer values will mean we are likely to see a lot of members investigating their options.”

Barlow also said trustees and sponsors should ensure that members considering long-term irreversible decisions are being provided with sufficient education and support to enable them to make the right decision for their circumstances.

He added: “We would also recommend schemes consider how the substantial changes in market conditions have affected the funding strategy and whether, in light of this, the transfer value basis remains appropriate.”