Steady Fall in Pension Transfer Values In January
Pension transfer values as measured by the Xafinity Transfer Value Index fell steadily during January 2018, falling from £236,000 at the end of December 2017, to £231,000 at the end of January 2018.
The Xafinity Transfer Value Index tracks the transfer value that would be provided by an example Defined benefit (DB) scheme to a member aged 64 who is currently entitled to a pension of £10,000 each year starting at age 65 (increasing each year in line with inflation). Different schemes calculate transfer values in different ways. A given individual may therefore receive a transfer value from their scheme that is significantly different from that quoted by the Xafinity Transfer Value Index.
DB transfer values fell slightly in January, by 2.1 per cent when compared to the previous month, according to actuarial firm Xafinity. The typical transfer value stood at £231,000 at the end of January, lower from the figure of £236,000 at the end of 2017, according to the specialist in pensions actuarial, consulting and administration. During 2017, transfer values remained high, but in line with the figures of the previous year - at an average of £234,000 at the end of 2016.
The difference between maximum and minimum readings of the index in January was £6,000 (or around 2.4 per cent).
Sankar Mahalingham, Head of DB Growth, Xafinity Punter Southall said, “We have seen a steady fall in transfer values over January 2018. Increases in gilt yields have been the main driver, with inflation remaining relatively stable.”
According to Tom Selby, senior analyst at AJ Bell, “quantitative easing has forced down gilt yields since the financial crash, driving up DB pension deficits and the transfer values offered to members. At some point in the future, gilt yields will inevitably creep northwards, although nobody knows exactly when that will happen. For anyone considering quitting their DB scheme, it’s important they consider how losing such a valuable source of guaranteed income would affect their retirement plans, rather than being lured by a big cash offer. These are hugely complex decisions and obtaining good quality, regulated, impartial advice is absolutely critical.”
The interest rate increase in November, from 0.25 per cent to 0.5 per cent, is also expected to drive down defined benefit transfer values. Nevertheless, according to Hymans Robertson, around one million individuals will transfer out of their DB pension schemes in the next 25 years. HM Revenue & Customs data showed more than £14bn has been unlocked from defined contribution pensions since pension freedoms came into effect.