Transfer quotations have reached the lowest take-up rate since 2015, falling to 15 per cent in Q4 2020, the month in which the Financial Conduct Authority's (FCA) ban on contingent charging came into effect, according to analysis by LCP.

The firm explained that while the low rate continues a steady downward trend that has been taking place since take-up rates hit a record high of 34 per cent in 2017, the ban on contingent charging has exacerbated this trend.

LCP also found that, although this downward trend can be seen across the market, it is particularly apparent in the middle to upper ranges, with only “the very largest” defined benefit (DB) transfers still proceeding in significant numbers.

Those in the upper mid-range saw the biggest fall in transfer take-up rates, with only 12 per cent of transfers quoted between £400,000 and £800,000 in Q4 2020 paid out compared with 32 per cent in 2019, prior to the contingent charging ban.

This compared to a fall from 48 per cent to 35 per cent for those transfer quotations over £800,000.

LCP partner, Bart Huby, commented: “DB transfer activity has been in gradual decline for several years, but the ban on contingent charging seems to have reinforced this trend, effectively hollowing out the middle market.

“In contrast, there has been much less impact on the largest pots, where the advice cost is still relatively modest compared to the amount transferred.

"But for average transfer values, an upfront advice cost running into thousands of pounds, and for advice which may be not to transfer in any case, is increasingly acting as a deterrent to transfer activity."

The analysis also showed that quotation rates had stabilised over Q1 and Q2 2021, with an annualised rate of 5.4 per cent of deferred members, which is close to pre-Covid-19 rates.

However, LCP clarified that the latest data on transfer requests indicates a fall in activity across July and August.

Quotation rates also continued to be highest for those aged 55 and over, with just under 7.5 per cent of this subset requesting a transfer quotations in the 12 months to 30 June 2021, compared to just under 3 per cent of members under 50.

Furthermore, as a proportion of all quotations in the year which were then paid, 62 per cent were paid to members aged 55 and over and 10 per cent were paid to members under 50.

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