Defined benefit transfer numbers have dropped to a fresh low as the continued lockdown and new rules on transfer advice begin to bite.
LCP has published its latest update on how the market is doing based on a sample of more than 80 schemes it administers.
The firm has tracked the proportion of DB pension scheme members who transfer out each quarter since the start of 2016.
The latest data shows just 17 out of every 10,000 members obtained a transfer quote in the final quarter of 2020 and went on to transfer out.
These are levels not seen since the introduction of pension freedoms and stands at only a quarter of the peak in autumn 2017.
LCP put the drop down to two factors:
- Fewer people are requesting transfer value quotations. In the fourth quarter of 2020, 116 members out of every 10,000 requested a quotation, barely half the rate in the summer of 2017. Lockdown is likely to have depressed this number, as early indications from 2021 show some recovery in this figure as lockdown eased.
- A smaller percentage of people who obtain quotes move on to transfer. Only 15% of those who received a quote in Q4 2020 have now transferred. This ‘take-up rate’ of around 1 in 7 quotes turning into a transfer compares with a high of 1 in 3 in the middle of 2017.
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LCP pointed out that one thing which changed in Q4 2020 is the Financial Conduct Authority ban on contingent charging by financial advisers.
This means members now have to pay for transfer advice whether a transfer is recommended or not.
In addition, the last couple of years has seen a continuing decline in the number of financial advisers willing to provide DB transfer advice.
As a result, pension scheme members who obtained quotes may have found it hard to find an adviser and/or may have been put off by the risk of paying thousands of pounds for transfer advice only to be recommended not to transfer.
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Bart Huby, partner at LCP, said: “A range of factors has combined to drive down volumes in the DB transfer market.
“Lockdown has clearly reduced activity, but even where people do ask for a transfer quote they are now far less likely to turn that into a pension transfer.
“The new rules on charging for transfer advice have only been in force for a few months, but there are already signs that people may be reluctant to pay thousands of pounds for transfer advice with the risk that they are advised not to transfer.”
Andrew Pijper, associate consultant at LCP added: “Whilst regulators rightly stress the value of staying in a defined benefit pension, it will be important to ensure that those for whom a transfer may be a good idea can continue to access high quality and affordable advice.
“Pension schemes may have to do more in future to help members to access advice if these trends continue.”
Apart from the issue of no more contingent charging, both advisers and their PI insurers are probably fearful of even the best advice imaginable being deemed subsequently by the FCA or the FOS to have been defective. It’s an area of advice that’s become virtually radioactive and best given an appropriately wide berth.