Pension transfer values dip as gilt yields rise

September saw a reverse of rising pension transfer values with average transfers measured by one provider dropping sharply over the month, falling by 4% from £240,000 in the first week of September to £230,000 by the end of the month. The fall reverses, at least temporarily, the recent trend of increases in transfer values and is likely to be mainly due to gilt yields rising, says Sipp and pensions admin provider Xafinity. The difference between maximum and minimum readings as measured by Xafinity’s Transfer Value Index over September 2017 was £12,000 (or around 5%). Sankar Mahalingham, head of DB growth at Xafinity said: “We have seen a sharp fall in transfer values over September 2017, reversing the increases experienced during August. The driver for the fall was an increase in gilt yields over the month, with longer term expectations for inflation remaining largely unchanged.“Historic CPI inflation was 2.9% in the year to the end of August, up from 2.6% a month earlier and this statistic was released on 12 September. This raised speculation in the markets that the Bank of England Monetary Policy Committee may start to raise the Official Bank Rate sooner than previously thought. “This possibility was reinforced in comments made by Bank of England Governor Mark Carney in a lecture given to the International Monetary Fund in Washington a week later. When expectations for increases in the Official Bank Rate accelerate, it is normal to see gilt yields increase, all else equal, meaning the rise in yields over the month was not surprising.”The Xafinity Transfer Value Index tracks the transfer value that would be provided by an example 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, says the company.

Pension transfer values dip as gilt yields rise

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