COVID-19 leads to most volatile month yet for transfer values

Over the turbulent month of March, defined benefit (DB) transfer values fell 3% whilst the number of members taking a transfer value fell to a record low, according to XPS Transfer Watch.  XPS Transfer Watch 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 £249,700 at the end of February, to £242,600 at the end of March. This relatively small fall is a result of gilt yields being at similar levels on the month ends but this masks a much more turbulent month for transfer values. In the week to 19 March the Index fell 11% to a low of £222,800, a level not seen since July 2016, before recovering to finish the month on £242,600. These dramatic movements were largely due to fluctuations in gilt yields as the COVID-19 outbreak took hold during March.

XPS Pensions Group’s Transfer Activity Index recorded a fall in the number of transfers completed in March, to an annual equivalent of 0.76% of eligible members, down from 0.89% in February. Although this rate isn’t far off the average levels observed in the last year, it is the lowest level recorded by the Transfer Activity Index since its inception in 2018.

In market news, the Pensions Regulator issued guidance in relation to transfer values on 27 March, as part of wider COVID-19 guidance. TPR has told trustees to be wary of a heightened risk of members being targeted by scammers during this crisis. They also confirmed that they will not use their regulatory powers for a period of 3 months where trustees suspend transfer values and, as a result, breach transfer value disclosure requirements.

 

Mark Barlow, Partner, XPS Pensions Group commented: “The unprecedented COVID-19 crisis has sent shockwaves through the financial markets, causing the greatest fluctuations we have ever seen in the Transfer Value Index.

“With such volatile markets, it is perhaps unsurprising that transfer activity has also fallen, to the lowest level since the inception of the Index, as members shy away from big financial decisions in the current climate.

“We welcome the Regulator’s guidance on transfers as it provides comfort to those trustees looking to pause and take stock. However, we have found that around 75% of our clients are still able to continue quoting and paying DB pension transfers.  In these cases, member support services such as scam protection and high quality financial advice, will be crucial in protecting member outcomes in the current environment.”