Defined Benefit  

Pension transfer values stable in January

Pension transfer values stable in January

Pension transfer values remained stable during the first month of 2019 as a result of lower inflation expectations and reducing gilt yields. 

The XPS Pensions Group Transfer Value Index remained unchanged at the end of January at £235,000 when compared with the previous month. 

The difference between maximum and minimum readings of the index in the month was £6,800, or 2.9 per cent, however.

Article continues after advert

The index tracks the transfer value that would be provided by an example defined benefit (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.

Sankar Mahalingham, head of DB growth at XPS Pensions, said: "Transfer values rose over the first half of January, suffered a sharp fall mid-month, before then increasing gradually towards the end of the month.

"The reason for the mid-month fall was due to lower inflation expectations, with reducing gilt yields towards the end of the month bringing the index back in line with the start of month position.

"While there was some volatility observed in January, it is lower than that experienced in December 2018. It is possible that there will be more volatility in coming months as various UK and global political events continue to unfold."

The figures for January 2019 were a marked improvement when compared with the previous year. At the end of January 2018 the typical transfer value stood at £231,000. 

The index showed that values have been fluctuating between £225,000 and £235,000 since early November 2016, aside from a post-Brexit surge to £245,000 in October 2016. 

Andrew Pennie, head of Pathways at Intelligent Pensions said: "Transfer values remain relatively high and with so much political and economic uncertainty are likely to remain volatile. 

"A three percent difference in the month of January could represent a considerable sum when looking at DB transfers and does show that relatively small changes in key factors, such as inflation or gilt yields, can have a significant impact."

He added: "It is important to remember however that a recommendation to transfer should be based on the client’s underlying objectives and the transfer value affects this only so far as whether the timing of the transfer is good.

"The index isn’t necessarily consistent with actual scheme assumptions and how they calculate transfer values so ‘good timing’ will often be down to good or bad luck."