Defined benefit (DB) transfer values are back on the rise following a calm summer, according to the latest Xafinity transfer value index (TVI).
The value of Xafinity’s hypothetical pension rose steadily over the month to a 3% gain, increasing from £230,000 at the beginning of August to £237,000 by the end of the month.
The difference between maximum and minimum value readings throughout the month was £9,000 – or about 3.6%.
Xafinity’s index tracks the transfer value that would be provided by an example DB scheme to a member aged 64 who is entitled to a pension of £10,000 each year, starting at age 65. It increases each year in line with inflation.
The firm credited reductions in gilt yields as being the main driver behind the latest increase.
In August gilt yields dropped from a high of 1.25% to a low of 1.04%.
Head of DB growth Sankar Mahalingham said: “We have seen a steady increase in transfer values over August 2017. Reductions in gilt yields have been the main driver, with inflation remaining relatively stable.”
Lower gilt yields tend to increase transfer values as more money has to be invested to meet future pension commitments, he said.
Brief period of stability
The steady increase follows a brief period of stability, with July seeing a comparatively low value swing throughout the month of £6,000.
Prior to that, the second quarter of 2017 saw plenty of volatility. The month of June witnessed the difference between minimum and maximum Xafinity readings swing by more than double July’s reading, about 5.2% (or £13,000). April and May also saw increased volatility. In May the index pointing to a variation of 3.5% (or 9,000) and the snap-election rocked transfer values in April.
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