Defined Benefit  

Transfer values continue stable trend in July

Transfer values continue stable trend in July

Pension transfer values were stable in July, after showing little movement in the month of June.

According to XPS Pensions, transfer values finished the month on the same level as they had started, at £233,000.

The firm’s transfer value index, which tracks the imaginary transfer value provided by a defined benefit scheme to a member aged 64 who is entitled to a pension of £10,000 each year starting at age 65, found the maximum and minimum readings in July were merely £3,200 apart (about 1.4 per cent).

On 2 August the Bank of England monetary policy committee (MPC) raised the base rate of interest from 0.5 per cent to 0.75 per cent - the highest level since 2009. 

But Sankar Mahalingham, head of DB growth at XPS Pensions, said transfer values may still not see any big movement.

He said: "The impact [the rate rise] will have on longer-dated gilt yields remains to be seen, and it is these that affect transfer values rather than the official bank rate. 

"It is likely that the move from the Bank of England MPC was broadly in line with market expectations, in which case any impact on gilt yields may be muted."

He added different schemes calculate transfer values in different ways, therefore an individual may receive a transfer value from their scheme that is significantly different from that quoted by the XPS index.

Transfer values surged in the months after Britain voted to leave the European Union, rising from £210,000 in June 2016 to around £245,000 in September 2016.

For most of 2018 transfer values have been fairly stable, fluctuating between £230,000 and £235,000.

Alistair Cunningham, financial planning director at Wingate Financial Planning, said values could fall after the rate rise.

He said: "Theoretically we will see gilt yields increase, and therefore values fall, but they have been so volatile over the past couple of years it is really just noise in the short-term. Ultimately transfer values are actuarially fair so it’s largely an irrelevance anyway."

XPS, formerly called Xafinity Punter Southall, was formed after Xafinity bought the actuarial consulting, pensions administration and investment consulting businesses of Punter Southall group early this year. 

It rebranded as XPS Pensions Group in May.

carmen.reichman@ft.com