Defined benefit transfers have fallen to their lowest level in five years, with only one in 400 members transferring out, as the contingent charging ban appears to have taken a toll.
Analysis from LCP, published today (June 14), found in Q3 2020 only 25 out of every 10,000 member transferred out of their DB pension into a defined contribution plan, down 62 per cent from the peak in Q3 2017 and the lowest level since 2016.
Data from Q3 is the latest available due to the lag between a quotation being issued and the corresponding payment being made, which can be between three and six months, LCP said.
The consultancy said although transfer activity has been on a gradual decline, the latest falls could be directly linked to the ban on contingent charging which came into force in October 2020.
The ban on contingent charging means a client has to pay for the advice regardless of whether they go on to transfer.
It applies to all transfers apart from consumers with certain identifiable circumstances, such as those suffering from serious ill-health or experiencing serious financial hardship.
Bart Huby, partner at LCP, said while the ban was a positive move, it should not stop people from being able to do a transfer.
Huby said: “While this should be welcomed because it means that members are less at risk of potentially compromised advice, there is a danger that members may find the [advice] market too pricey and so not progress past the quotation stage.
“The fact that take-up rates for smaller transfers have decreased sharply in the last quarter is already indicating this may well be the case.”
Meanwhile, LCP’s analysis also found that take-up rates for transfers under £500,000 dropped from 19 per cent in the first half of 2020 to 13 per cent in the third quarter of 2020.
LCP said Increased up-front advisory costs were likely to have a particularly large impact on members with smaller benefits, as any fixed charges will appear large relative to the transfer value being considered.
By contrast, for transfers over £500,000, the take-up rate increased from 40 per cent to 49 per cent.
But LCP said it appeared that the number of members considering a transfer was starting to recover and could reach pre-pandemic levels soon.
There were 136 quotations per 10,000 members issued in Q1 2021, an increase of 17 per cent on the previous quarter and an increase of 22 per cent on Q2 2020, when transfer activity dropped off sharply in the wake of the first lockdown.
Andrew Pijper, associate consultant at LCP, said: “While the contingent charging ban is keeping transfer take-ups low, the green shoots of post pandemic recovery can be seen in the rise in the number of new transfer quotations.
“While it’s too early to say whether this increased activity will translate into more transfer payments, the indication is that more members are starting to plan for their financial future again as the pandemic recedes and life gradually returns to normal.
