Pension transfer values briefly hit a new high in August as the FCA reviews potential redress for unsuitable transfer advice.

The XPS Pensions Group’s Transfer Value Index hit a new record high of £264,300 on 24 August although it fell back to end the month at £259,000. 

XPS says the index remains “high” and appears to be driven by increasing inflation expectations and falling yields on government bonds, both of which can increase transfer values.

XPS says the FCA review of pension transfer advice, now under way, should help improve outcomes for transferees who have received bad advice.

By the end of 2021 the FCA plans to have reviewed its guidance for redress for defined benefit pension scheme members who received unsuitable advice on a transfer. In the interim the authority has clarified that any compensation should cover charges and ongoing advice fees that would not have been incurred if a transfer had not taken place.

Mark Barlow, partner, XPS Pensions Group, said: “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.”

The separate DB pension transfer activity fell for the second month in succession, suggesting the number of transfers has dropped or is slowing down. The Transfer Activity Index showed that an annualised rate of 62 members out of every 10,000 transferred their pension.

August’s Scams Red Flag Index fell below 50% for the first time in over 12 months, with 47% of transfers showing at least one warning sign of a potential scam or poor member outcomes. This suggests that scam alerts have declined recently. 

Helen Cavanagh, client lead, member engagement hub, XPS Pensions Group, 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.”

XPS Transfer Watch monitors how market developments have affected transfer values for an example member, as well as how many members are choosing to take a transfer value.

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.