On the go: The continuing fall in gilt yields is driving transfer values towards near record levels, according to XPS Pension Group.
The estimated cash transfer value of a 64-year-old member with an annual pension of £10,000 and typical inflation increases reached £247,000 at the end of July, up from £240,800 at the end of June.
XPS also recorded an increase in the number of transfers that its administration business processed during July, compared with recent months.
The transfers processed last month were an annualised equivalent of 0.98 per cent of eligible members, compared with 0.87 per cent last month. Despite the increase, this still remains below the average seen over the past 12 months of 1.13 per cent.
Mark Barlow, partner, XPS Pensions Group, commented: “The end of July interest rate, net of inflation, was the lowest month-end figure recorded since the inception of our Transfer Value Index. It is only recent slowdowns in life expectancy improvements that have stopped the index hitting record levels this month. However, transfer activity appears to be unaffected, remaining relatively stable at an annual rate just below 1 per cent".
Recently, the Financial Conduct Authority's research on companies carrying out pensions transfer advice revealed that 69 per cent of members were recommended to transfer out of their pension schemes. The widespread practice of contingent charging may one of the reasons for the overly high number of recommendations to transfer, as advisers are only paid if the transfer goes ahead. The FCA is now proposing to ban contingent charging.
Mr Barlow commented that a ban “could suppress transfer activity as advisers withdraw from the market and members are put off taking advice because of the up-front fees".
He said: "It is important that pension schemes put in place a process now to ensure their members have access to high-quality advice when they need it.”
