December completes a turbulent year for transfer values
December 2019 marked the fourth month in a row where the XPS Pensions Group (XPS) Transfer Value Index fell, but the number of members taking a transfer value rose, according to XPS’s 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’s Transfer Value Index fell from £241,700 at the end of November to £238,800 at the end of December 2019, with the movements being driven by increases in gilt yields over the month.
Mark Barlow, Partner, XPS Pensions Group said: “2019 has been a turbulent year for transfer values, although November and December were two of the most stable months of the year. Surprisingly, the General Election did not have a significant impact on transfer values, perhaps as the market had already anticipated the result.”
The index ended the year 9% below its peak of £260,400 on 3 September 2019. It started the year on 1 January at £235,200 and ended at £238,800 on 31 December, meaning transfer values effectively finished 2019 where they started and are only just above the lowest level seen in 2019.
Mark Barlow continued: “Throughout 2019 Brexit dictated the direction of travel for the Transfer Value Index as confidence in the UK government fluctuated, impacting gilt yields. The index hit its lowest value of 2019 (£232,100) on 17 January, shortly after Theresa May’s withdrawal agreement was voted down in the largest House of Commons defeat for the Government in 100 years. It remained low for some time until, on 21 March, the EU agreed to delay Brexit, resulting in the biggest rise of the year for the index (2.9% over two days). The political uncertainty over the summer led to lots of volatility as gilt yields fell, with the index hitting its highest value ever on 3 September (£260,400). The day after, a bill to block a no-deal Brexit passed its first vote in the House of Commons, prompting a rise in gilt yields and the following two days saw the biggest fall of the year in the transfer value index (-4.6%). This volatility shows no signs of abating with Britain due to leave the EU on 31 January.”
XPS’s Transfer Activity Index recorded an increase in the number of transfers completed in December, to an annual equivalent of 0.91% of eligible members, up from 0.81% in November. This means that, over the course of 2019, 0.96% of eligible members transferred out of pension schemes administered by XPS, remaining broadly at the 1% level seen in recent months but representing a significant fall from previous years.
2019 has been a busy year for developments in the pensions transfer market through regulation and an increased focus on pension transfer advice. Key market news included:
- The launch of the Pensions Transfer Gold Standard
In April a voluntary code for financial advisers developed by the Personal Finance Society was launched to improve the quality of pensions transfer advice and there are now over 1,000 transfer practitioners signed up to the standard.
- The Financial Conduct Authority published results of their analysis of pensions transfer advisers
In June the FCA published the results of their analysis of firms carrying out pensions transfer advice between April 2015 and September 2018. The headline result was the revelation that 69% of members taking pensions transfer advice in that period were recommended to transfer out.
- The FCA launched a consultation on 30 July in response to their analysis of transfer advisers
Following the publication of the results of their analysis, the FCA launched a consultation covering proposed changes to their rules and guidance around pensions transfer advice. The main proposed change was a ban on contingent charging for such advice. The consultation closed on 31 October 2019 and we are still awaiting the outcome.
- The Queen’s Speech on 19 December
As part of The Queen’s Speech we saw the reintroduction of the Pension Schemes Bill 2019-20, originally put forward in the Queen’s Speech of 14 October 2019. This includes further safeguards against pension scams for members of defined benefit pension schemes.
Mark Barlow commented: “2019 has seen a good amount of progress to improve outcomes for those members choosing to transfer out of their DB scheme. The Pensions Transfer Gold Standard was a great first step and it is encouraging to see so many advisers now adhering to its principles. The FCA’s consultation and the Pensions Bill 2019-20 will bring big changes to the industry in 2020. Combining this together with the actions many trustees and sponsors are taking, will hopefully make 2020 a breakthrough year for improving member outcomes.”