Defined benefit transfers activity has declined significantly in recent months, with the cash lump sums available to those looking to switch falling by around a third over the last year.
Analysis by Barnett Waddingham shows that the cash equivalent transfer values (CETVs) for those looking to move out of a DB plan have decried by around 30 per cent over the 12 months to the end of March this year.
This reduction has been due to the significant increases in gilt yields seen during 2022, following the Bank of England’s decision to increase interest rates in response to high inflation. This increase has also driven up the price of annuities over the same period.
Barnett Waddingham partner Liam Mayne says: “We have observed a 40 per cent fall in transfer values paid out in the six months since September 2022, when the mini-budget was announced, compared to the six months beforehand.
“With market conditions seemingly more settled, now is a good time for trustees and sponsors to reflect on whether it would be beneficial to take actions to re-engage members with the transfer option.
“While transfers will not be the immediate priority for schemes seeking to buy out in the short-term, it is important to recognise the significant advantages to both members and sponsors of a well-designed transfer exercise for schemes in this situation.
“For members, this may be the last chance to access DC flexibilities on terms that are more favourable than those offered by insurers. For sponsors, a transfer exercise could reduce the cost of any buy-out payment.”