Pension transfer values plummet

Pension transfer values plummet

An increase in real gilt yields towards the end of 2015 saw pension transfer values fall to near their lowest level for the year, according to the Xafinity Transfer Value index.

As of 31 December 2015, the index stood at £202,800 - just 1.2 per cent more than the lowest reading over the whole of 2015, and more than 5 per cent less than the highest reading for the year.

The index tracks the transfer value that would be provided by an example defined benefit scheme to a member aged 64 who is currently entitled to a pension of £10,000 each year starting at age 65 - and which increases each year in line with inflation.

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Paul Darlow, head of proposition development at Xafinity, said: “Having tracked the Xafinity Transfer Value index for an entire year, it is interesting to note that there is a difference of nearly 7 per cent between the highest and lowest readings of the index.

“Being aware of this potential variability is important for trustees and sponsors of pension schemes when considering the impact of transfer values on the financial position of their pension schemes.”

The index was launched in April 2015 shortly before the introduction of the pension reforms.

At its launch the index indicated that a 64-year-old with a £10,000 a year final salary pension pot would be able to get £213,000 if they transferred to a defined contribution scheme.

The number of members accepting a transfer payment across a sample of pension schemes administered by Xafinity in October and November 2015 was double those accepting a transfer payment in January 2015.

By December, yields for US and UK government bonds were up around 20 to 30 basis points at most maturities.

Clayton Cumming, a partner at Glasgow-based Advice & Wealth Management Solutions, said: “We have had a lot more inquiries about DB transfers, especially from clients who already have a pension plan in place and the DB pension might be something that is not paramount.

“We do them if the circumstances are right.

“No one knows what the future brings and transfer values could fall again or go up, no one has got a crystal ball so you have got to take everything into account.”