Top of defined benefit transfer values called

Top of defined benefit transfer values called

Defined benefit transfer values are unlikely to get much higher, an actuary has predicted.

Speaking at a DB pension event for advisers in Peterborough today (19 June), Alan Smith of First Actuarial said this might be the peak of transfer values.

He said: "The market is expecting interest rates to go up. My personal opinion is that interest rates will go up. 

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"There are some economists who are in the lower for longer camp but with the political uncertainty and Brexit my view is that gilt yields will start to drift up.

"We might look back in a few years time and say that was the peak though you cab never call the top of the market.

"I cannot imagine transfer values getting much higher."

Mr Smith also cited the recent levelling off of mortality improvements as a reason transfer values might have peaked.

There has been a large increase in demand for DB transfers driven by transfer values which have been soaring in the 10 months since the EU referendum thanks to plummeting gilt yields.

According to Xafinity's most recent figures, average transfer values now stand at around £241,000 for a pension worth £10,000 a year at age 65.

That's £30,000 more than the same pension was worth on 1 June 2016, before the UK voted to leave the European Union.

Research by Royal London suggested the typical cash sum offered is between 25 and 30 times the value of the annual pension given up.  

However, one in four advisers reported that most of the transfers that they deal with are worth 30 to 40 times the annual pension foregone.

Soaring transfer values have lead to an surge in pension transfers.

Figures from The Pensions Regulator found that up to 80,000 defined benefit pension transfers were made in the year ending 31 March.

The Financial Conduct Authority is currently investigating the practice of DB transfers, amid concerns about suitability.