DB transfer values hit record high; scam red flags continue to fall

Defined benefit (DB) pension transfer values hit a record high of £264,300 on 24 August, before falling back to the £259,000 at the end of the month, whilst scam red flags continued to fall, according to XPS Pensions Group’s Transfer Watch.

The group noted that the Transfer Value Index remained "high", attributing this to increasing inflation expectations and falling yields on government bonds, both of which generally increase transfer values.

DB pension transfer activity, however, fell for the second consecutive month since reaching the highest rate in a year in June 2021, with the transfer activity index showing an annualised rate of 62 members out of every 10,000 transferred their pension in August.

The Scam Red Flag Index fell below 50 per cent for the first time in over 12 months, with 47 per cent of transfers showing at least one warning sign of a potential scam or poor member outcomes, compared to 54 per cent in July 2021, and a record high of 76 per cent at the end of 2020.

Commenting on the findings, XPS Pensions Group member engagement hub client lead, Helen Cavanagh, said: “It is encouraging to see another month in which the Scams Red Flag Index has fallen, although flags are still being identified in almost half of cases.

“Fee-related concerns remain the most prominent warning area; redress guidance is a reminder that members can fall foul of unjustified fees both at the point of their initial transfer and from the charges levied from that point onwards.”

The group noted that the Financial Conduct Authority (FCA) has also recently announced plans for a periodic review by the end of 2021 of its guidance towards redress for members who received unsuitable advice regarding a transfer from a DB scheme.

XPS Pensions Group partner, Mark Barlow, added: “Transfer values remain high due to low gilt yields and inflation expectations creeping up.

“The index reaching another record high demonstrates how tempting a transfer value can be which, in turn, highlights the importance of providing appropriate support for members alongside it.

“The FCA review of its redress guidance will help to improve outcomes for members when they have received poor advice.”

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