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Volatility of transfer values could increase after Brexit, experts warn

Consultancy XPS Pensions Group has said that transfer values could become more volatile in the run up to Brexit, bucking a year-long period of stability.

The group’s transfer value index, which tracks what transfer value a benchmark DB scheme would provide, stayed fairly even over the past two months, latest data shows.

The index stood at £232,000 at the end of August, falling marginally to £230,000 at the end of September.

While at one point during September the index dropped to £227,000, the lowest value in more than a year, the difference between maximum and minimum readings last month was just £6,200, or 1.7 per cent.

However, XPS head of DB growth Sankar Mahalingham says that uncertainty around the Brexit deal could put pressure on the index to fluctuate.

Mahalingham says: “We have now seen a 12 month period of relatively stable transfer values. The index at the end of September 2018 stands at the same value as it did at the end of September 2017, £230,000, and has fluctuated by only £9,900 (or around 3 per cent) during that time.

“As we approach the deadline for agreeing a deal for Britain leaving the European Union, speculation about the type of deal negotiated, or indeed the possibility of a no deal scenario may impact gilt yield and inflation expectations, thereby increasing the volatility in the index.”

The index tracks the benefits an example DB scheme would provide to a member aged 64 who is currently entitled to a pension of £10,000 each year starting at age 65, increasing each year in line with inflation.

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