DB transfer values volatile throughout September

Hannah Godfrey reports...

Defined benefit (DB) transfer values varied significantly during September, while the number of XPS Pensions Group members requesting a transfer value remained low, according to the firm.

XPS’s transfer value index reached a record high of £260,400 on 3 September before dropping sharply to a low of £247,700 just 10 days later.

The index recovered to finish the month at £254,300, down slightly from £255,600 at the end of August. XPS said the movements were primarily driven by gilt yields over the month.

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.

Meanwhile, XPS Pension Group’s transfer activity index, which monitors how many members are choosing to take their transfer value, recorded a further fall in the number of transfers completed in September. It dropped to an annual equivalent of 0.80% of eligible members, down from 0.86% in August.

The group said it has seen the average age of members taking transfer values from schemes they administer increase from age 52 to 57 over the past three years. It said the change was likely to be a result of recent changes to guidance from the Financial Conduct Authority, which makes it more difficult for financial advisers to recommend a pension transfer to members below the UK minimum retirement age of 55.

XPS Pensions Group partner Mark Barlow said: “September was a very turbulent month for the financial markets, mainly due to ongoing political uncertainty around Brexit. This has resulted in significant volatility in the transfer value index, with a 5% swing being seen during the month.

“Despite the recent increases in transfer values being quoted, transfer activity remains close to the lowest levels that we have witnessed in recent years.”