Turbulent market conditions cause transfer values to fall to record lows, and by almost one third since December
Turbulent market conditions cause transfer values to fall to record lows, and by almost one third since December
24 Oct 2022
Further increases on the yields of long-dated gilts caused XPS Pension Group’s Transfer Value Index to fall to an unprecedented low of £181,000 at the end of September. This represented a drop of £16,000 over the month, a fall of 8%.
Transfer values have now fallen by almost a third this year with their largest monthly fall in September. The index fell as low as £150,000 on 27 September, following the announcement of the mini-budget and subsequent market reaction, in which gilt yields briefly reached 5% per annum.
XPS’s Transfer Activity Index showed an annualised rate of 38 members per 100,000 were transferring pensions to another provider for the second month in succession, which continues the trend of lower volumes of transfers being paid in 2022.
The number of transfer cases raising at least one scam warning flag rose slightly over the month to equal the previously recorded high of 97%, according to XPS’s Scam Flag Index. The September data covers close to 400 transfers, and the majority of these members are being referred to MoneyHelper for a safeguarding call.
Mark Barlow, Head of Member Options, XPS Pensions Group, said: Whilst the focus on pension funds in recent weeks has been largely on gilt rates and their impact on scheme investments, defined benefit promises remain largely unaffected. However, pension scheme members considering a transfer will be impacted as values fall to their lowest level for almost 20 years. On the other hand, those using their transfer to secure benefits in alternative arrangements, for example annuities, will see marked improvements which may offset some or all of the fall”
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.
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.
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 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.