Only “time will tell” if a second wave of coronavirus cases will have an impact on defined benefit transfer activity, experts say.
Consultant LCP has issued its latest analysis that looks at the number of requests to transfer out of 81 DB schemes it administers.
The purpose of the exercise is to monitor how transfers have been affected by the Covid-19 crisis.
The index demonstrates the number of member requests to transfer out of DB pension schemes decreased sharply around the start of the first Covid-19 lockdown.
Only 120 new transfer quotation requests had been received between the initial lockdown announcement on 23 March and when restrictions were weakened seven weeks later, an average of 20 per week.
This was just 42 per cent of the average pre-lockdown level of activity in 2020 of 48 transfer requests per week.
Activity recovered over the summer as restrictions lifted and maintained momentum with 31 transfers averaged in August and 40 transfers averaged per week during September
But the upward recovery in transfers could be at a fork in the road as October begins due to several factors.
The FCA’s contingent charging ban begins on 1 October, but transfers with contingent fees will still be allowed if the member is seriously ill or in financial distress.
The government’s furlough scheme is meant to finish at the end of October and restrictive measures could make it harder for people to work.
On the weekend the Financial Times reported pension schemes such as British Airways are bracing for a wave of requests from next month.
LCP partner Bart Huby says: “It will be interesting to see how transfer activity changes as we head into October – especially if we’ll see ‘lockdown lite’ member behaviour mirroring the trend under the previous full lockdown.
“Furthermore, the imminent ban on contingent charging by financial advisers (coming into effect on 1 October 2020) may make it harder for members to access the advice they need to transfer, so could also potentially reduce activity. On the other hand, the winding down of the government’s furloughing scheme could result in more people looking to their pensions for financial flexibility. Only time will tell.”
Yesterday, Money Marketing revealed that 190 advisers have given up their transfer permissions since the FCA announced it intended to ban contingent charging.
Advisory firms have generally not given up their permissions due to the contingent charging ban, it is due to being unable to get full PI cover and the FCA telling them, or them realising, that they need to give up their permissions.
Slightly bemused by the mainstream financial media’s obsession with ‘DB Transfer activity’ as if it were a measure of some great goal of IFAs. It’s just a means to an end that in some rare cases means that clients can achieve objectives that they cannot otherwise. Its a tool in the bag that IFAs have, not the bag itself. As many DB transfers are done well ahead of the actual need to draw funds, I don’t see what difference a few extra weeks/months makes to the client.