Covid-19 causes transfer value volatility

Market volatility in the wake of the Covid-19 outbreak has resulted in substantial fluctuations in the value of defined benefit pension schemes, making it more difficult for members considering a transfer.

Defined benefit transfer values fell 3% during March, according to consultancy XPS Pensions. However, that decline masks more dramatic swings in transfer values at certain points during the month. In the week to 19 March the XPS’ Transfer Activity Index fell 11% to a low of £222,800, a level not seen since July 2016, before recovering to finish the month on £242,600. These movements were largely due to fluctuations in Gilt yields.

The number of transfers completed in March also reduced to an annual equivalent of 0.76% of eligible members, according to the index, down from 0.89% in February.

Although this rate was not far off the average levels observed during the last year, it was the lowest level recorded by the Transfer Activity Index since its inception in 2018.

Mark Barlow, Partner, XPS Pensions Group said the unprecedented Covid-19 crisis had sent shockwaves through the financial markets, causing the greatest fluctuations the consultancy had ever seen in the Transfer Value Index.

“With such volatile markets, it is perhaps unsurprising that transfer activity has also fallen, to the lowest level since the inception of the Index, as members shy away from big financial decisions in the current climate,” he said.

“We welcome the regulator’s guidance on transfers as it provides comfort to those trustees looking to pause and take stock. However, we have found that around 75% of our clients are still able to continue quoting and paying DB pension transfers,” Barlow said.

In these cases, member support services such as scam protection and high quality financial advice, will be crucial in protecting member outcomes in the current environment, he added.