A calm before the storm for transfer values?

Defined benefit (DB) transfer values dropped slightly during November, as did the number of members taking a transfer value, according to XPS Transfer Watch which monitors how market developments have affected transfer values for an example member, as well as how many members are choosing to take a transfer

XPS Pensions Group’s Transfer Value Index fell from £244,200 at the end of October to £241,700 at the end of November, continuing the decline observed in October. The movements were driven by increases in gilt yields over the month however, the relatively stable financial markets over November translated into the lowest volatility in the index since July 2018.

XPS Pensions Group’s Transfer Activity Index recorded a decrease in the number of transfers completed in November, to an annual equivalent of 0.81% of eligible members, down from 0.99% in October.

In market news, the Chancellor of Exchequer and the UK Statistics Authority announced in September that the Retail Prices Index (“RPI”) is to be aligned with a version of the Consumer Prices Index incorporating housing costs, known as CPIH. This could have an impact on transfer values for those members with benefits linked to RPI which may see their values reduce. The change is proposed to happen sometime between 2025 and 2030 and there will be a consultation early next year on the precise timing.

Mark Barlow, Partner, XPS Pensions Group commented: “It’s perhaps surprising, given the General Election, that November represented the most stable month for our Transfer Value Index in over a year. We will wait to see whether that continues after voters go to the polls on 12 December. Transfer activity also fell over November, perhaps impacted by the political uncertainty, but the rates remained broadly in line with those observed recently.

“Market reaction to the proposed changes to RPI has been subdued so far, perhaps reflecting the uncertainty over the timing of any changes. This means that transfer values have been largely unaffected so far. However, trustees and sponsors should now consider whether transfer values paid from their pension schemes are providing fair value to members in light of this announcement.”