Defined benefit transfer values soar by 3%

Transfers increased from £230,000 at the beginning of August to £237,000 at the end of the month, according to the specialist in pensions actuarial, consulting and administration.

The difference between maximum and minimum readings of the index was £9,000 (or around 3.6 per cent).

Sankar Mahalingham, head of defined benefit growth at Xafinity, said that these figures show “steady increase in transfer values over August 2017”.

He said: “Reductions in gilt yields have been the main driver, with inflation remaining relatively stable.”

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

Different schemes calculate transfer values in different ways, however.

A given individual may therefore receive a transfer value from their scheme that is significantly different from that quoted by the Xafinity transfer value index.

According to Nathan Long, senior pension analyst at Hargreaves Lansdown, the “cost of providing guaranteed income has risen over the last month nudging transfer values higher”.

He said: “Pension members may be tempted to transfer at such values, but for many retaining a secure guaranteed income in retirement will remain a sensible choice.

“Before contemplating a defined benefit pension transfer, people should remember that they are basically getting an annuity at a discount if they stay where they are.”

The defined benefit transfer market is expected to grow even more in the future, since schemes will be obligated to communicate the benefits value to each of their members annually.

This new obligation is part of the revision of the European Union Institutions for Occupational Retirement Provision Directive (IORP II), which the UK market will have to transpose by 13 January 2019, just before Brexit.

maria.espadinha@ft.com