The volume of defined benefit (DB) pension transfers hit the lowest level recorded since 2016, analysis by advisory firm LCP has revealed.
In a study of more than 80 schemes administered by the firm, LCP found that in Q4 2020, just 17 out of every 10,000 received a transfer quote, this compares to 19 for Q1 2016.
The number for the last three month period of 2020 nearly halved compared to Q3 (25 for every 10,000) as the Financial Conduct Authority’s ban on contingent charging for pension transfer advice came into force at the beginning of the last quarter.
According to LCP there have been two main factors driving transfer activity to this record low:
- Fewer people are requesting quotations. In Q4 2020, 116 members out of 10,000 asked for one, “barely half the rate in the summer of 2017”, the firm said. “Lockdown is likely to have depressed the number, as early indications from 2021 show some recovery as lockdown eased.”
- A smaller percentage of people who get quotes then moves on to a transfer. In the last quarter of 2020, only 15% of those who received a quite have now transferred. According to the data, in the last three months of 2020 only one in seven quotes turned into a transfer compared with one in three in the middle of 2017.
Greater access to advice
Not only does LCP attribute this to lower quotations but also to the coming into force of the contingent charging ban from 1 October 2020 and to the fact that the number of financial advisers willing to provide DB transfer advice has been on a free fall for the last couple of years.
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 DB 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.”
