Transfer values continue to set new records as inflation expectations increase further
Transfer values continue to set new records as inflation expectations increase further
16 Dec 2021
XPS Pension Group’s Transfer Value Index climbed to a new high of £270,000 at the end of November on the back of further forecast increases in inflation rates and a slight reduction in gilt yields. Yet despite higher values on offer, transfer activity remained steady at an annualised rate of 59 members out of every 10,000 transferring their pension.
The Red Flag Index crept up to 50% in November, meaning half of prospective transfers showed one or more warning signs of a potential scam or likelihood of poor member outcomes. The signs of potential scams monitored for by XPS include the warning flags in the new transfer value regulations, as well as wider signs of concern identified and monitored by XPS’ Scam Protection Service.
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, the new transfer regulations came into force on 30 November and enable trustees to remove a member’s statutory right to proceed if any red flags are raised in relation to a transfer. It also introduces amber flag ratings, which if identified require a member to have a scams guidance appointment from the Money and Pensions Service (MaPS) before the transfer can proceed.
Mark Barlow, Partner, XPS Pensions Group commented:
“Increasing inflation expectations are continuing to drive ever-higher transfer values. However, this doesn’t seem to be translating into increased activity, which has remained consistently lower than pre-pandemic levels perhaps due to difficulties in obtaining suitable financial advice or individuals steering clear of making significant financial decisions in the current environment.”
Helen Cavanagh, Client Lead, Member Engagement Hub, XPS Pensions Group added:
“Our Red Flag Index shows that half of pension transfers indicated warnings of potential scams and the importance of protecting members. The new regulations will result in many members losing their statutory right to a transfer or having to take scams guidance prior to a transfer. Trustees will need to have a robust process in place to implement these regulations appropriately.”
Chart 1 – XPS Transfer Value and Transfer Activity Index
Chart 2 – XPS Red Flag Index
Notes
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 Red Flag Index tracks the percentage of monthly transfers reviewed by the businesses’ scam protection service that are identified as having warning ‘red flags’ which indicate that the member is at risk of being scammed. The red flags are based on the Pension Scams Industry Group’s Code of Good Practice. The service is provided to the Trustees of approximately 250 occupational pension schemes.