Defined BenefitApr 12 2018

Pension transfer values on the rise

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Pension transfer values on the rise

Defined benefit (DB) transfer values slightly increase to £235,000 at the end of March, according to actuarial firm Xafinity.

This value is above previous month's figures, when it stood at £232,000, according to the specialist in pensions actuarial, consulting and administration.

Over the first quarter of 2018, transfer values initially dropped, before returning to levels seen at the beginning of the year.

During 2017, transfer values remained high, but in line with the figures of the previous year - at an average of £234,000 at the end of 2016.

The difference between maximum and minimum readings of the index in March was £4,400 (or around 1.9 per cent).

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.

According to Sankar Mahalingham, head of defined benefit growth at Xafinity Punter Southall, the increase in transfer values over March 2018 “was mainly due to a drop in gilt yields over the month”.

Higher gilt yields means the deficits of defined benefit company pension schemes tend to fall, so trustees are less likely to offer very high transfer values to get rid of member liabilities by paying them off now rather than giving them a pension later.

Mr Mahalingham added: “The Bank of England Monetary Policy Committee (MPC) kept the official bank rate at 0.5 per cent during the month, but the market is anticipating gradual rises during 2018.”

Interest rates are widely expected to rise in May, after retail sales figures released last month (22 March) being much more positive than expected.

Mr Mahalingham said: “Any delay in actual rises would likely mean an increase in transfer values if the delay is expected to be prolonged.”

maria.espadinha@ft.com