Defined benefit transfer values appeared to stabilise in January, following a post-Brexit surge that saw values smash previous records, Xafinity has revealed.
Despite falling from their October peak, average DB transfer values were still around 10 per cent higher than their pre-Brexit levels.
That translated as a £20,000 increase for someone with an annual pension worth £10,000.
Throughout January, a DB pension worth £10,000 a year would have delivered an average lump sump of between £230,000 and £235,000.
That was down from the October high of almost £245,000, but up from the early-June averaged of £210,000.
Values have been fluctuating between £225,000 and £235,000 since early November 2016.
I wouldn’t want to second-guess the next move for transfer values – but it will be interesting to see how markets react to the triggering of Article 50 and a UK move away from EuropePaul DarlowThe boost to transfer values was caused by plunging gilt yields following the vote to leave the European Union.
DB transfer values are calculated according to the cost to a scheme of meeting its obligations in gilts, at the rates of the day. When gilt yields are low, it takes more cash to meet the same obligation - hence transfer values rise.
On 23 June 2016 - the day of the EU referendum - 10-year gilts stood at 1.37 per cent. The next day they went into freefall, and hit a record low of 0.52 per cent in early August.
As of today (21 February) they had made up most of that ground, standing at 1.26 per cent.
But Paul Darlow, Xafinity's head of proposition development, said values had not fallen to the same extent that gilt yields had risen because an uptick in inflation to 1.8 per cent in January increased the cost of meeting obligations.
"The two movements mostly cancelled each other out, leaving transfer values (at least for inflation-linked benefits) largely unchanged over the month," he said.
"I wouldn’t want to second-guess the next move for transfer values – but it will be interesting to see how markets react to the triggering of Article 50 and a UK move away from Europe."
Advisers have reported a huge spike in demand for DB transfers as a result of both pension freedoms and increased transfer values.
Last month Prudential revealed it had seen an eightfold increase in demand for its transfer value analysis (TVAS) service since the introduction of pension freedoms in April 2015.
Stan Hughes, a pension expert at Prudential, told FTAdviser he had recently seen a transfer value that was 48 times the value of the annual pension.
Yesterday (20 February), the government launched a green paper on the future of the UK's struggling DB sector. The paper contained little on DB transfers, despite some people arguing more DB transfers would be beneficial for all parties.
james.fernyhough@ft.com
