Defined benefit transfer values hit a new high in November as a result of rising inflation and falling gilt yields.
XPS Pensions Group’s Transfer Value Index saw transfer values hit a high of £270,000 at the end of November on the back of further forecast increases in inflation rates and a slight reduction in gilt yields.
This is slightly higher than the previous record of £265,000 which was hit on October 28 of this year, and is based on the estimated cash transfer value of a 64-year-old member with a pension of £10,000 a year with typical inflation increases.
However, despite higher values on offer, DB pension transfer activity remained steady with 59 out of every 10,000 having transferred their pension.
Mark Barlow, partner at XPS Pensions Group, said: “Increasing inflation expectations are continuing to drive ever-higher transfer values.
“However, this doesn’t seem to be translating into increased activity, which has remained consistently lower than pre-pandemic levels perhaps due to difficulties in obtaining suitable financial advice or individuals steering clear of making significant financial decisions in the current environment.”
In addition, the XPS Red Flag Index crept up to 50 per cent in November, meaning half of prospective transfers showed one or more warning signs of a potential scam or likelihood of poor member outcomes.
As part of regulations introduced at the end of last month, trustees are now 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: “Our Red Flag Index shows that half of pension transfers indicated warnings of potential scams and the importance of protecting members.
“The new regulations will result in many members losing their statutory right to a transfer or having to take scams guidance prior to a transfer. Trustees will need to have a robust process in place to implement these regulations appropriately.”
amy.austin@ft.com
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