DB transfer values hit record highs in August

DB transfer values hit record highs in August

27 Sep 2021

XPS Pensions Group’s Transfer Value Index hit a new record high of £264,300 on 24 August, before falling back to end the month at £259,000. The index remains high, driven by increasing inflation expectations and falling yields on government bonds, both of which generally increase transfer values.

DB pension transfer activity fell for the second month in succession. The Transfer Activity Index showed that an annualised rate of 62 members out of every 10,000 transferred their pension.

August’s Scams Red Flag Index fell below 50% for the first time in over 12 months, with 47% of transfers showing at least one warning sign of a potential scam or poor member outcomes.

XPS Pension Group’s Transfer Watch monitors how market developments have affected transfer values for a typical pension scheme member. It also monitors how many members are choosing to take a transfer from their DB pension scheme and, through its Red Flag Index, the incidence of scam red flags identified at the point of transfer.

The FCA has announced a periodic review by the end of 2021 of its guidance towards redress for members who received unsuitable advice regarding a transfer from a defined benefit scheme. In the interim the authority has clarified that any compensation should cover charges and ongoing advice fees that would not have been incurred if a transfer had not taken place.

Mark Barlow, Partner, XPS Pensions Group commented:

“Transfer values remain high due to low gilt yields and inflation expectations creeping up. The Index reaching another record high demonstrates how tempting a transfer value can be which, in turn, highlights the importance of providing appropriate support for members alongside it. The FCA review of its redress guidance will help to improve outcomes for members when they have received poor advice.”

Helen Cavanagh, Client Lead, Member Engagement Hub, XPS Pensions Group added:

“It is encouraging to see another month in which the Scams Red Flag Index has fallen, although flags are still being identified in almost half of cases. Fee-related concerns remain the most prominent warning area; redress guidance is a reminder that members can fall foul of unjustified fees both at the point of their initial transfer and from the charges levied from that point onwards.”

Chart 1 – XPS Transfer Value and Transfer Activity Index

Chart 2 – XPS Red Flag Index