Defined benefit transfer values have soared to new record highs, pushed up by dwindling gilt yields, leaving members vulnerable to pension scammers, pensions consultancy Xafinity has revealed.
Over the month of August the average transfer value of a DB pension that paid out £10,000 a year was £241,000, the Xafinity Transfer Index showed.
This was an increase of £16,000 - or 7 per cent - on July’s figure, itself was a record high and a £10,000-a-year DB pension is now worth £37,000 more than it was at the beginning of the year.
The unprecendented rise in values prompted Paul Darlow, head of propositions at Xafinity, to urge the industry to be on its guard against scammers.
He said: “An increase of 7 per cent in just one month is extraordinary, and illustrates the eye-watering sums potentially now on offer to members of defined benefit pension schemes.”
“I think there is a real risk that pension scammers will seek to exploit this by convincing unwary members to move their pension into bogus investments. We should all be on our guard to help protect members.”
Adam Reeves, a financial planner with Reeves Financial, agreed that high transfer values increased the threat of scams.
He said: “My starting point is that it would not be in the client’s best interest. Most people should not be giving up guarantees, especially now, with all the economic uncertainty.”
While the Financial Conduct Authority was “trying to clamp down as best they can” on scammers Mr Reeves said there were new ones popping up all the time, making it difficult to keep them in check.
Transfer values are calculated according the cost to a scheme of funding a pension in today’s money. That means when gilt yields are low, schemes must spend more cash to achieve the same returns.
Following the UK vote to leave the EU in June, 10-year gilt yields plunged below 1 per cent for the first time, and have remained there ever since. On Thursday (8 September) they were at 0.72 per cent.
james.fernyhough@ft.com
