February saw the largest monthly drop in defined benefit (DB) pension transfer values since 2014 as they fell by almost 5 per cent from January’s average, according to the XPS Transfer Watch.

XPS Pensions attributed the decline in values to a rise in government bond yields throughout the month, which it said had increased discount rates used to place a value on members’ benefits, adding that values were returning to levels last seen in March 2020, before the first pandemic lockdown.

Transfer values fell from £254,000 in January to £242,000 in February.

While the month saw transfer values decline, the firm’s Transfer Activity and Red Flag indices remained broadly steady, with XPS’s scam protection service detecting one or more red flags in 58 per cent of transfers processed in February, marginally down from the 60 per cent reading in January.

Transfer activity increased slightly, from 0.62 per cent to 0.66 per cent, during the same period.

XPS Pension Group’s Transfer Watch monitors how market developments have affected transfer values for a typical pension scheme member, while also providing analysis on how many members are choosing to take a transfer from their DB pension scheme and, through its Red Flag Index, the incidence of scam red flags identified at the point of transfer.

XPS partner, Mark Barlow, said: “Transfer values plunged during February, returning to levels not seen since the start of lockdown. This means members will need to bear in mind the impact on any alternate pension their transfer value can now provide. Despite this we have not seen a fall in transfer activity over the month.”

XPS consultant, Helen Cavanagh, commented: “The fall in our XPS Red Flag Index for two consecutive months is very welcome, and we hope to see this trend continue. Protecting members from scams is an area of focus for the industry, which is highlighted by the Pension Schemes Act 2021 imposing conditions on a member’s transfer rights.

“Ahead of the publication of the regulations, due later this year, trustees should be doing what they can to protect their members from pension scams, including signing up to The Pension Regulator's scam protection pledge.”

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