1 September 2020
The average size of a transfer taken out of a Defined Benefit pension scheme in the latest quarter stood at £556,000 according to consultants LCP. This was an increase of 30% compared with the previous quarter, and the first time for three years that the average value has exceeded half a million pounds. However, the volume of transactions fell in the last quarter, suggesting that transfer activity was dominated by a smaller number of higher value transactions.
The figures are based on analysis of more than 80 DB pension schemes administered by LCP.
Record average transfer values are likely to reflect a combination of continuing ultra-low interest rates and possibly a wariness among those with smaller pensions to take on investment risk at a time of economic uncertainty.
In the most recent quarter, only around 1 in 5 of those who had received a transfer value quotation completed a transfer out, the lowest take-up rate since 2016. In part this may reflect an unwillingness by individuals to make major financial decisions in the midst of the Covid-19 lockdown period, as well as guidance from the Pensions Regulator which allowed schemes to take longer when processing pension transfers.
Other key findings from LCP’s transfer analysis include:
There was a sharp reduction in transfer quotation activity over March, April and May, with the rate of requests falling initially to well below 50% of pre-lockdown levels. Over June this picked up somewhat, but after peaking in mid-June has settled back and is currently running at about 75% of pre-lockdown levels.
- Quotation rates continue to be highest for those aged 55 and over. Around 8% of members aged 55 and over requested a transfer quotation in the year to 30 June 2020 compared to only 3% of members under 50. The average quotation amount was £315,000, which reinforces our finding that it is the larger transfers which are most likely to be taken up.
- Over the 12 months to 30 June 2020 LCP’s administration teams have provided transfer value quotations to over 5% of deferred members, with a value of £548m in total. This compares to 6% and £580m for the year to 30 June 2019. Apart from the final four months to 30 June 2020, transfer quotation activity has broadly stabilised at around this 6% level and is significantly lower than the peak in activity seen in 2017 when almost 8% of deferred members requested transfer quotations with a value of £778m.
Bart Huby, Partner at LCP, commented: “It’s no surprise that this quarter has seen such a dip in pension scheme members asking for quotations or taking up quotations they had already received, given that it coincided with the height of the pandemic. But it seems as though those with the largest pensions have been the least likely to be put off from completing a transfer.
“While the Covid-19 impact is ongoing, the transfer market is about to enter into very new territory as the FCA’s ban on ‘contingent charging’ comes into effect in a few weeks. This could have a big impact on the number of quotations requested. It may also make it harder for members to get the right advice as we expect it will lead to many advisers leaving the market.”
Read the full quarterly analysis here