Defined Benefit  

Pension transfer values remain at a record high

Pension transfer values remain at a record high

Defined benefit (DB) transfer values remained high during 2017, but in line with the figures of the previous year, according to Xafinity.

The numbers fluctuated through the year, but the typical transfer value stood at £236,000 at the end of December little changed from the figure of £234,000 at the end of 2016, according to the specialist in pensions actuarial, consulting and administration.

The difference between maximum and minimum readings of the index was £17,000 (or around 7 per cent).

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

During December, the Xafinity Transfer Value Index increased by 1.7 per cent, continuing the relative stability seen over the last quarter of 2017.

According to Sankar Mahalingham, head of defined benefit growth at Xafinity Punter Southall, transfer values have remained at or around historic highs during last year.

He said: "We have continued to see significantly more transfer values being taken than in previous years.

"We have seen some volatility in transfer values, with changes in gilt yields being the main driver, a result of a number of issues such as the uncertainty caused by the general election, the first rise in the Bank of England official bank rate for over 10 years and commencement of Brexit negotiations."

The rate increase, from 0.25 per cent to 0.5 per cent, is expected to drive down defined benefit transfer values.

However, transfer values remained relatively calm over the final quarter of 2017, and finished the year at much the same level as the previous year, Mr Mahalingham added.

According to Paul Gibson, managing director of Granite Financial Planning, "gilt yields are almost at the same level as they were 12 months ago, so it is perhaps unsurprising that the Xafinity index has not change hugely".

He does not expect, however, that the high values will lead to more transfers.

Mr Gibson said: "Other factors will impact on transfer values, and as ever, just because values are relatively high does not make a transfer out more likely, as a host of other factors needs to be considered."

Figures published by Mercer in April showed as much as £50bn has been pulled from final salary pension schemes in the past two years.

Meanwhile HM Revenue & Customs data showed more than £14bn has been unlocked from defined contribution pensions since pension freedoms came into effect.