Defined Benefit 

Transfer values see biggest fluctuation in a year

Transfer values see biggest fluctuation in a year

Pension transfer values have seen the biggest monthly change for more than a year.

According to the latest XPS Pensions Group transfer value index out this morning (8 November), transfer values rose to £235,000 at the end of October from the £230,000 measured at the end of September.

The difference between maximum and minimum readings of the index over the month of October was £8,600 (about 3.6 per cent).

By comparison, values in August had moved merely 1.7 per cent, or £4,100 and for the duration of this year so far the index has fluctuated between £230,000 and £235,000, according to XPS.

The 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.

After a summer lull of very little movement in this space, Sankar Mahalingham, head of DB growth at XPS Pensions Group, said the increase in October was due to a drop in gilt yields and an increase in inflation over the month.

He said: "We mentioned last month that it was possible there would be a return to volatility as we approach the deadline for agreeing a deal for Britain leaving the European Union and continued speculation about the type of deal negotiated, including no deal, all of which may impact gilt yields and inflation expectations."

Earlier this year the Financial Conduct Authority disclosed that the value of money transferred from defined benefit to defined contribution schemes had leapt to £20.8bn in 2017 from £7.9bn in 2016.

But there are concerns switching out of a guaranteed income scheme may not be in the best interest for many people.

Margaret Snowdon, chairman of the Pensions Administration Standards Association, said: "The large transfer values generally on offer currently tend to entice people to transfer whether or not it’s in their best interest, and make it tough for administrators to try to inject reason into the process through their due diligence."

Ben Roe, senior partner and head of the member options team at Aon, believes there is still some debate to be had about the level of support a scheme should offer its members.

He said: "The UK’s DB schemes are seeing the full effect of freedom & choice, with both schemes and members now having some points of reference from other schemes on the way that DB to DC transfers can be undertaken.

"It is clear that reducing the barriers for members to engage with advice or streamlining the process, does help ensure that members make the most appropriate decision at retirement."

Different schemes calculate transfer values in different ways. A given individual may therefore receive a transfer value from their scheme that is significantly different from that quoted by the XPS Pensions Group index.