The number of members transferring out of defined benefit schemes has halved compared to pre-pandemic levels, according to Barnett Waddingham.
The most recent analysis of cash equivalent transfer values (CETVs) by Barnett Waddingham reveals that this is partially caused by about 20 per cent fewer members asking for a quotation, but the biggest contributing factor is the significant drops in values being placed on members’ pensions as a result of increases in gilt yields.
Only the market volatility seen during Q2 2020 during the first pandemic lockdown and Q4 2022, as defined by the “mini-budget,” were worse than the decline in transfer value activities seen in Q2 2023, which made it the third-lowest quarter.
Changes made by the FCA in October 2020, such as a restriction on contingent pricing, are partially to blame for the drop in transfer value quotations. But the current sharp decline in quotations is probably attributable to declining transfer values over the past year as a result of rising gilt yields according to Barnett Waddingham.
The report says that transfer value payments have also continued to be extremely rare, reaching their lowest level ever in Q2 2023 since data analysis started. This is probably due to the fact that fewer transfers have been requested and transfer value amounts have dropped.
Barnett Waddingham partner Liam Mayne says: “Considering the drastically changed landscape, sponsors and trustees should reassess whether their existing approach to supporting and engaging members are still likely to meet their objectives.
“Any decision to scale back the support provided will need to be weighed against the positive impact that a well-designed transfer process can have on member outcomes, something that is of particular importance amid the ongoing cost of living crisis.”
Barnett Waddingham senior consulting actuary Mark Tinsley says: “Looking ahead, all IFA firms will need to consider how the upcoming Consumer Duty requirements from 31 July 2023 will impact how they provide DB transfer advice, which may result in some significant changes to their advice process.”
