Defined Benefit  

Falling gilt yields boost DB transfer values

Falling gilt yields boost DB transfer values

Defined benefit transfer values hit a record high in October as a result of gilt yields falling.

XPS Pensions Group’s Transfer Value Index saw transfer values hit a high of £265,200 on October 28, before falling back to end the month at £260,000. 

This is slightly higher than the previous record of £264,300 which was hit on August 24 of this year. The index shows the estimated CTV of a 64-year-old member with a pension of £10,000 a year with typical inflation increases.

XPS Pensions said the increase was driven by continued high inflation expectations together with a dip in gilt yields.

However, DB pension transfer activity fell slightly with 56 members out of every 10,000 having transferred their pension, down from 62 in September. 

Mark Barlow, partner at XPS Pensions Group, said: “Transfer values reached another record high in October, largely due to high inflation expectations and low gilt yields. Despite this, transfer activity has yet to recover to pre-pandemic levels, perhaps a result of members finding it more challenging to access financial advice.”

In addition, the XPS Red Flag Index stayed below 50 per cent for the third successive month, with 47 per cent of transfers showing at least one warning sign of a potential scam or poor member outcomes.

As part of regulations published earlier this month, from the end of November trustees will be able to pause or block pension transfers if they deem necessary, by raising a ‘red flag’.

In addition, they can raise an ‘amber flag’ if they suspect a potential scam, which will mean the member will have to provide evidence they have taken specific scam guidance from the Money and Pensions Service before they are allowed to transfer.

Helen Cavanagh, client lead at the member engagement hub at XPS Pensions Group, said these rules could create problems for trustees.

Cavanagh said: “The strengthening of transfer regulations is a major step forward, as it now gives trustees real power in the fight against pension scams. 

“However, the new regulations present a major challenge to trustees, who need to act now to ensure that they are able to comply when these changes come into effect at the end of this month.

“It’s also important to remember that satisfying the conditions in the legislation doesn’t mean that a transfer isn’t a scam. We encourage all trustees to continue looking out for other scam warning signs to protect their members and their schemes.”

amy.austin@ft.com

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