Pension transfer activity has dropped to the lowest level since the introduction of the pension freedoms, research by Lane Clark & Peacock (LCP) reveals.
The consultant found a significant number of DB schemes have now decided to put a temporary hold on providing transfer quotations in a bid to allow market volatility to settle down and provide schemes with more time to review their transfer value calculation bases, with consideration for the market developments caused by the prolonged coronavirus pandemic.
It said this is likely to reduce overall transfer activity further for a period of time.
But consultant also found member interest in transfers had also waned and was at its lowest level since early 2014, before the introduction of the pension freedoms.
LCP said the first quarter of the year had seen strong declines in transfer requests "especially in the weeks since the Covid-19 lockdown commenced". It said this followed an already notable downward trend of requests for transfer value quotations in 2019 when compared with 2018.
The chart above shows the number of requests for DB transfer values per week based on a sample of 80 schemes administered by LCP.
A typical week in both January and February this year saw 40-50 scheme members request a transfer value. The number has continued to fall steadily since the start of March however, with volumes now down by more than three quarters.
LCP said possible explanations for the most recent decline in requests for transfer values include:
- The major disruptions to everyday life from the lockdown meaning that members have, at least temporarily, more pressing things to think about
- Members attaching more weight to the relative certainty of a DB pension compared with a DC pension, particularly in light of recent stock market slumps;
- Disruption to the work of independent financial advisers, which might have otherwise led to inquiries about transfer values
LCP partner Bart Huby said: "What is not yet clear is whether transfer volumes will bounce back later in the year as schemes relax temporary restrictions on processing transfers and more members decide they need to access their pensions to meet financial pressures."
"This could reflect nervousness about market conditions or simply the fact that people have other things to focus on at the moment."
Figures from the Pension Protection Fund show the aggregate section 179 deficit of the UK's DB schemes grew by an estimated £11.3bn over the course of March alone, with the end of the month marked by extreme market volatility from the Covid-19 crisis.
The combined funding shortfall was £135.9bn, with the funding level falling from 93.2% in February to 92.5% in March, total assets fell by 2.3% to £1.7trn, and liabilities also fell by 1.6% to £1.8trn.
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Every month, several firms issue trackers of the aggregate defined benefit (DB) scheme funding position. See here for the September 2020 estimates on the various measures…
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