‘Coronavirus fears drive DB transfer value rise in February’

Hannah Godfrey reports...

Defined benefit (DB) transfer values rose during February as a result of market turbulence caused by the coronavirus, according to XPS Pensions Group.

XPS Pension Group’s transfer value index (TVI) rose from £245,800 at the end of January to £249,700 at the end of February, representing a 1.6% increase. XPS said the movement was driven by a 0.1% fall in gilt yields, with inflation expectations barely moving during 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.

Elsewhere, the group’s transfer watch, which monitors how market developments have affected transfer values for an example member, as well as how many members are choosing to transfer away from schemes XPS administers, recorded a decrease in the number of transfers completed in February, to an annual equivalent of 0.89% of eligible members, down from 1.03% in January. The XPS Transfer Watch only monitors transfers out of its own schemes.

XPS Pensions Group partner Mark Barlow said: “As a result of market turbulence, transfer values have continued their recovery towards the record levels seen in the third quarter of 2019. The slight dip in transfer activity brings it back into line with average rates observed over the past year.

“February has seen significant volatility in the financial markets and understandably this has largely been attributed to coronavirus. The outbreak and concerns of a pandemic have led to an increase in transfer values, resulting from the fall in gilt yields, as investors have turned to safe havens.

“Many schemes will have seen their funding levels dented by this market turbulence and so those schemes experiencing high levels of transfer activity, or running a member options exercise, may wish to consider whether their transfer value basis remains affordable.”