CETV requests dip by 10% but schemes face 'pent up demand'

The volume of cash equivalent transfer value (CETV) requests fell by around 10 per cent in the year ended 31 March 2021, but there is “pent up demand” for transfers, according to analysis by Barnett Waddingham (BW).

Examining the conduct of members in schemes it administers, the firm found that volumes of transfer quotes requested by members dropped by 20 per cent to 40 per cent in each of the lockdowns, and by 10 per cent overall across the year.

Looking at the issue of defined benefit (DB) transfers as a whole, BW noted that the ban on contingent charging from October 2020 and the reduction in the number of firms now prepared to give DB transfer advice may have also contributed to the fall in demand.

However, the firm noted that there could be “pent-up demand for members to consider their options”, adding that CETV requests from February and March had been 50 per cent higher than seen on average in the previous 10 months going back to the start of the pandemic.

Barnett Waddingham associate, Mark Tinsley, said: “Schemes that are yet to act in this area should review their options in advance of a possible uptick in member interest. This includes (re)considering the merits of a bulk exercise, partnering with a high quality IFA on an ongoing basis and reviewing the CETV terms.”

Additionally, BW stated that a typical transfer value had fallen significantly during 2021, to the extent that CETVs may now be lower than they were at 31 March 2020, stating that a 60 year old member’s CETV could be as much as 7 per cent lower.

Tinsley commented: “Trustees and sponsors need to remain alert to market volatility and the knock-on impact for members looking to transfer out. Ensuring that the CETV terms remain robust to changes in market conditions is key, as well as having processes in place to temporarily suspend transfer value quotations in the event of extreme market movements.”

The firm also recommended that schemes examine communication changes in the light of newly released guidance for DB transfers, although it noted with some relief that “most ‘business-as-usual’ communications and partnerships with IFA firms will not cross any regulatory boundaries”.

Tinsley said: “One area that does need looking at is member communications, or modelling tools, that provide illustrations of what members can do with a DB transfer value in a DC scheme – specifically, drawdown or annuity purchase illustrations that use assumptions about the future (which will be the case for all drawdown illustrations).

“If benefit statements, retirement packs or other communications include these types of illustrations then these will need to be reviewed urgently to ensure that they are not crossing the line into regulated advice.”

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