Tide turns on defined benefit transfer values

Tide turns on defined benefit transfer values

Defined benefit (DB) transfer values have dropped by 4 per cent in September due to an increase in gilt yields, Xafinity data shows.

Transfers decreased from £240,000 in the first week of September to £230,000 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 Xafinity Transfer Value Index over last month was £12,000 (or around 5 per cent).

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These values have reversed the increases registered in the previous month, when transfer values hiked by 3 per cent.

According to Sankar Mahalingham, head of DB growth at Xafinity, the driver for the fall “was an increase in gilt yields over the month, with longer term expectations for inflation remaining largely unchanged”.

He said: “Historic consumer price index inflation was 2.9 per cent in the year to the end of August, up from 2.6 per cent a month earlier; this statistic was released on 12 September.

“This raised speculation in the markets that the Bank of England Monetary Policy Committee may start to raise the official bank rate sooner than previously thought.”

Mr Mahalingham added that when expectations for increases in the official bank rate accelerate, “it is normal to see gilt yields increase,” which means that this rise was not surprising.

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.

DB transfers are being closely monitored by the Financial Conduct Authority (FCA), which presented this week new figures on this topic.

Advice in more than half of the transfers where the recommendation was to move the retirement pot was unsuitable or unclear.

From a total of 88 DB transfers analysed by the watchdog since October 2015, only 47 per cent were suitable.

The regulator found that 17 per cent were unsuitable and in the remaining 36 per cent suitability was unclear.