Pension CETV requests recovering to pre-pandemic levels

The number of pension scheme members requesting cash equivalent transfer values (CETVs) increased by 50 per cent in Q2 2021, analysis from Barnett Waddingham has revealed.

The consultancy said that this suggested member interest in CETVs is “quickly returning” to pre-pandemic levels.

According to its analysis, a typical CETV for a 60 year old increased by around 2 per cent over the quarter for members whose pension increases are linked to inflation, and 3 per cent for those whose pension increased are fixed in payment.

However, the average value of CETVs for a 60 year old are still around 7 per cent lower than a year ago for those linked to inflation and 10 per cent lower for increases fixed in payment.

Barnett Waddingham stated that the fall in transfer value amounts over the year was due to “significant” rises in gilt yields in Q1 2021.

It also revealed that 35 bulk transfer exercises came to the market in the 12 months to June 2021, with 13 coming in Q2.

The average size of exercises in Q2 was 200 per cent greater than the average in the preceding nine months, which the firm said suggested that larger schemes are regaining the confidence to run transfer exercises.

Commenting on the analysis Barnet Waddingham associate, Mark Tinsley, said: “Whilst the number of transfer quotes requested by members has been volatile over the last 12 months, the number of CETVs actually paid out on behalf of members has remained remarkably steady.

“Given the vast majority of these members will have had to take financial advice this is slightly surprising given the well-publicised ban on contingent charging from October 2020 and the reduction in the number of firms now prepared to give DB transfer advice, which does not seem to be adversely impacting members’ willingness and ability to transfer.”

He noted that the sharp increase in transfer quote activity and the persistence in the volume of CETV payments indicated that the pandemic may have created a pent-up demand for members to consider their options, meaning that now is a good time for trustees and sponsors to review what support they provide to their members.
“Relatedly, trustees should also start to consider how to implement the new powers to be given to them to stop a DB transfer where it has characteristics of a pension scam,” he continued.

“With some cases likely to require an element of subjective judgment, which is potentially time-consuming, a pro-active approach to directing members to reputable sources of transfer advice could help minimise the additional administrative burden this may impose.
“Similarly, we have also seen a noticeable pick-up in bulk transfer exercises coming to the market in recent months – in fact, the quarter to 30 June 2021 was the busiest on our records that go back to the start of 2019. 

“With part of this likely to be due to exercises put on hold in 2020 now coming to the market, this suggests that many trustees and sponsors are adding bulk transfer exercises back into their de-risking ‘toolkit’. Schemes that are yet to act in this area should consider how transfer exercises can again form part of a longer-term de-risking strategy, whether to partner with a high quality IFA firm on an ongoing basis and whether to review the CETV terms to ensure transfer values remain set at appropriate levels.”

In June, Barnett Waddingham revealed that the volume of CETV requests had fallen by 10 per cent year-on-year to March 2021.

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