Average DB transfer exceeds £500k for first time in three years - LCP

The average size of a transfer taken out of a defined benefit (DB) pension scheme in Q2 2020 was £556,000, analysis by Lane Clark and Peacock (LCP) has revealed.

According to LCP, this represents a 30 per cent increase compared to the previous quarter and is the first time in three years that the average value has exceeded half a million pounds.

The firm clarified however, that the volume of transactions had fallen in the last quarter, noting that this suggests that transfer activity was dominated by a smaller number of high value transactions.

It explained that record average transfer values are also likely to reflect a combination of continuing ultra-low interest rates and a “wariness” among those with smaller pensions to take on investment risk amid economic uncertainty.

The research, which analysed more than 80 DB schemes administered by LCP, found that around 1 in 5 of those who had received a transfer value quotation completed a transfer out, the lowest take-up rate since 2016.

LCP emphasised that this may again, in part, reflect an unwillingness from individuals to make major financial decisions amid the Covid-19 lockdown, as well as the impact of guidance from The Pensions Regulator (TPR) that allowed schemes concessions around transfer timelines.

Furthermore, the average transfer quotation amount was £315,000, which the firm stated reinforces the finding that it is the larger transfers which are most likely to be taken up.

The analysis also revealed a "sharp reduction" in transfer quotation activity over March, April and May, with the rate of requests falling to “well below 50 per cent of pre-lockdown levels”.

LCP added that whilst this picked up “somewhat” and peaked in mid-June, it has since “settled back” and is currently running at about 75 per cent of pre-lockdown levels.

Quotation rates also continued to be highest for those aged 55 and over, with around 8 per cent of members over 55 requesting a transfer quotation in the year to 30 June 2020, compared to just 3 per cent of members under 50.

Commenting on the findings, LCP partner, Bart Huby, added: “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 Financial Conduct Authority's (FCA's) ban on ‘contingent charging’ comes into effect in a few weeks."

He added: “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.”

In the year to 30 June 2020, LCP provided transfer value quotations to around 5 per cent of deferred members, with a total value of £548m, compared to 6 per cent and £580m for the year to 30 June 2019.

The firm said that apart from the final four months to 30 June 2020, transfer quotation activity has “broadly stabilised” at around the 6 per cent level.

It added that this was "significantly lower" than the peak in activity seen in 2017, when almost 8 per cent of deferred members requested transfer quotations, with a total value of £778m.

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