XPS Transfer Watch – falling gilt yields push DB transfer values to record high
XPS Pension Group’s Transfer Value Index rebounded during the month, with DB pension transfer values hitting a new record high of £265,200 on 28 October, before falling back to end the month at £260,000. This new peak surpassed the previous record of £264,300 which was hit on 24 August of this year. The increase was driven by continued high future inflation expectations combined with a dip in gilt yields.
The Transfer Activity Index showed that an annualised rate of 56 members out of every 10,000 transferred their pension, which was a slight fall from the 62 registered in September. The Red Flag Index remained below 50% for a third successive month, with 47% of transfers showing at least one warning sign indicative 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.
In sector news, new transfer value regulations were published on 8 November. The regulations will be implemented from 30 November and will provide trustees with the power to block transfers that do not satisfy at least one of two conditions. The first relates to a receiving vehicle recognised as “safe” whilst the second flags any transfers exhibiting one or more of a set list of scam red warning flags.
Mark Barlow, Partner, XPS Pensions Group commented: “Transfer values reached another record high in October, largely due to high inflation expectations and low gilt yields. Despite this, transfer activity has yet to recover to pre-pandemic levels, perhaps a result of members finding it more challenging to access financial advice.”
Helen Cavanagh, Client Lead, Member Engagement Hub, XPS Pensions Group added: “The strengthening of transfer regulations is a major step forward, as it now gives trustees real power in the fight against pension scams. However, the new regulations present a major challenge to trustees, who need to act now to ensure that they are able to comply when these changes come into effect at the end of this month.
“It’s also important to remember that satisfying the conditions in the legislation doesn’t mean that a transfer isn’t a scam. We encourage all trustees to continue looking out for other scam warning signs to protect their members and their schemes.”
Chart 1 – XPS Transfer Value and Transfer Activity Index
Chart 2 – XPS Red Flag Index