Defined benefit (DB) transfer values plunged sharply over 2022 as investor concerns over UK debt drove government bond (gilt) yields higher, analysis by XPS Pensions Group has found.
XPS Pension Group’s Transfer Value Index fell by 4% over the month of December, and the tracker shows that transfer values fell a total of 36.6% from December 2021 as a result of significant rises in gilt yields.
UK gilt yields rose sharply throughout 2022 reflecting investors’ concerns about the impact of inflation on the country’s economy and the prospect of a widely predicted recession in 2023. Gilt yields are a major factor in determining the value of a defined benefit pension upon transfer.
The average value in December 2021 was £270,000 ($332,511, €306,080), but this plummeted to £171,000 in December 2022.
As transfer values fell, demand for transfers also contracted in 2022. XPS Pension Group’s Transfer Activity Index showed that average transfer activity across 2022 was 44 members per 100,000, down from the 62 per 100,000 across 2021.
The numbers for December 2022 were in line with annual averages, following a spike in November.
Scam warnings
2022 also saw a significant increase in the number of transfers being flagged as showing potential signs of a scam.
Some 87% of cases in 2022 showed scam ‘warning flags’, up from 52% the preceding year. This was largely down to new legislation introduced in late 2021 which, amongst other things, required that any transfer going into a vehicle with overseas investments raises a scam warning flag.
During December 2022, at least one potential scam warning sign was identified in 93% of the cases reviewed.
Mark Barlow, head of member options at XPS Pensions Group, said: “Transfer values have plummeted over the last year, which will be a cause of concern for many members. It makes access to high quality support and advice more important than ever before members make potentially irreversible decisions that could impact their retirement.
“However, it’s reassuring that, as yet, we have not seen a sustained trend of more members transferring due to cost-of-living pressures.”
