Month-end value of typical DB pension transfer falls to lowest level for seven years
Month-end value of typical DB pension transfer falls to lowest level for seven years
27 Jun 2023
The value of a typical DB pension hit the lowest month-end value seen in seven years in May as rising gilt yields and falling inflation expectations hit values.
XPS Pension Group’s Transfer Value Index fell by nearly 7% over May to £159,000, which is the lowest month-end value since XPS launched the Index in 2016. The continued fall in values is primarily due to a steady rise in gilt yields over May, coupled with a slight fall in long term inflation expectations. The level is the lowest month-end figure seen in seven years, and the lowest overall excluding the volatile fluctuations in valuation seen around the time of last year’s LDI crisis.
Helen Cavanagh, Client Lead at XPS Pensions Group’s Member Engagement Hub said, “Whilst increasing interest rates reduce transfer values, they do present investment opportunities, which means a transfer could still be in a member’s interest. However, it’s really important that members seek unbiased, quality financial advice to ensure they make a decision that’s right for their circumstances.”
XPS’s Transfer Activity Index increased dramatically during May, showing an annualised rate of 55 members per 100,000 transferring out of the current Scheme to an alternative arrangement. This is a sharp increase compared to April and breaks the trend of falling activity over the previous few months.
93% of cases reviewed by The XPS Scam Protection Service in May raised at least one scam warning flag, according to XPS’s Scam Flag Index. This represents a slight fall compared to April; however it has now been a year since the Index last fell below 90%.
Chart 1 - XPS Transfer Value Index
Chart 2 - XPS Transfer Activity Index
Chart 3 – XPS Scam Flag Index
Table 1 – Transfer Watch over the past 12 months
Source: XPS Pensions Group – All data is at the end of each month.
Notes:
XPS Transfer Watch is part of XPSArena, a free to access destination for learning support and development for people in pensions. Users will be able to scrutinise the latest data contributing to the headline Scam Flag Index, with filters available to compare warning flag prevalence over time and by several demographic groupings.
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 value.
XPS Pensions Group’s Transfer Value Index shows the estimated Cash Transfer Value of a 64-year-old member with a pension of £10,000 a year with typical inflation increases. The value changes over time with market movements. Mortality assumptions are reviewed periodically.
XPS Pensions Group’s Transfer Activity Index, (the bars on the chart) represent the annualised proportion of members that transfer out of pension schemes administered by XPS. If replicated across all private sector, funded, UK, DB schemes this indicates that approximately 50,000 DB members leave their schemes each year.
XPS Pensions Group’s Scam Flag Index tracks the percentage of monthly transfers reviewed by the businesses’ scam protection service that are identified as having warning ‘flags’ which indicate that the member is at risk of being scammed. The flags monitored include both the DWP’s set list of amber and red warnings and further areas of concern identified and monitored by XPS’ Scam Protection Service. The service is provided to the Trustees of approximately 350 occupational pension schemes.