Typical pension transfer values slumped to an “unprecedented” low of £181,000 at the end of September – a fall of 8% in one month, according to the latest XPS Pension Transfer index.
Falling gilt yields have cut transfer values by almost a third this year, with the largest monthly fall seen in September.
The cash transfer value of a typical pension pot fell by £16,000 in September, the index revealed.
XPS says that turbulent markets, particularly in gilts, have pushed down transfer values although annuity values have risen.
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.
In comparison, in December 2021 a typical pension transfer value was £270,000, nearly double.
In addition, transfer activity has fallen significantly in recently months and the number of scam warnings is up. The figures point to a transfer market being hit by economic volatility.
XPS’s Transfer Activity Index showed an annualised rate of 38 members per 100,000 transferring pensions to another provider for the second month in succession, continuing a trend of lower volumes of transfers 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 the members were referred to MoneyHelper for a safeguarding call.
Mark Barlow, head of member options, XPS Pensions Group, said: “While 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.”
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 represents 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.
