Defined Benefit  

Defined benefit transfer values hit record high

Defined benefit transfer values hit record high

Defined benefit transfer values reached record highs in August, according to data from XPS Pensions.

In an update issued today (August 28), the consultancy firm said its transfer value index reached an all-time high of £258,200 on August 21, which compares to £247,400 at the end of July.

The increase was largely driven by a significant fall in gilt yields during August, partially offset by a small fall in inflation expectations, XPS stated.

At the same time, the consultancy firm saw an increase in the number of transfer quotes being requested across some of the schemes it administers, with some members choosing to pay for an updated calculation with transfer values at their peak.

But the full data will only be available after the end of the month. At the end of July, XPS processed transfers for 0.98 per cent of eligible members.

According to Mark Barlow, a partner at XPS Pensions, recent volatile markets pushed transfer values steadily upwards over the past two months, with an all-time high in August.

He said: “The continuing fall in gilt yields has pushed transfer values to new record highs, around 10 per cent higher than they were this time last year.

“Although there is a lot of uncertainty around the future of the financial markets, an increase in transfer values will mean we are likely to see a lot of members investigating their options.”

Mr Barlow said trustees and employers should ensure individuals considering long term irreversible decisions were “being provided with sufficient education and support to enable them to make the right decision for their circumstances and financial futures”.

He added: “We would also recommend schemes consider how the substantial changes in market conditions have affected the funding strategy and whether, in light of this, the transfer value basis remains appropriate.”

Tom Selby, senior analyst at AJ Bell, said while DB pensions were incredibly valuable, in certain circumstances transferring could be the right thing to do.

He said: “Although the transfer value on offer is only part of that calculation, as values rise you would expect demand to increase. Furthermore, Financial Conduct Authority statistics suggest there are more positive transfer recommendations as transfer values go up, and fewer when they drop.

“However, a combination of tightening regulation and rising professional indemnity costs has constrained the supply of advice, with some choosing to pull out of the market altogether.

"As a result, we have a situation where some people simply cannot find an adviser willing to take on their case.”

The FCA has proposed new rules in this area, including a ban on contingent charging in all but a few pension transfer scenarios.

Its aim is to reduce concerns about a conflict of interest in situations where an adviser would only be paid if they recommended a transfer.

maria.espadinha@ft.com

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