Firm reports record defined benefit transfer activity

The number of quotes provided in the first quarter of 2017 for clients where LCP provide pensions administration services was a record high at 506, up 300 per cent on the comparable figure of 120 in the first quarter of 2014 and up 22 per cent on the previous quarter.  

This was based on the firm's pensions administration client base which currently consists of 77 schemes with around 28,700 deferred members.

The total transfer values quoted increased from around £20m per quarter to £200m per quarter since it began its analysis in 2014. 

The total transfer values paid out have increased from around £3m per quarter to £48m per quarter since it began its analysis in 2014.

The average age of those members taking transfer values was 57 in the third quarter of 2016, the oldest age the firm has seen since it started analysis of data.

More than half of members taking transfer values are now over age 55, which LCP claimed indicated that much current transfer activity represents members choosing pension flexibility as part of their at-retirement planning.

It seems that DB transfers are becoming almost mainstream, which is a particularly worrying development.Patrick Connolly

Bart Huby, partner of LCP, said: "The assumptions used to calculate transfers values are generally based on the yields available on government bonds (gilts).  

"When yields are very low (as they have been for the past year or so), transfer value amounts are high. Members can be attracted by these high amounts, which we expect are often much higher than most members would have anticipated.

"It seems to have taken some time since the new flexibilities were introduced in 2015 for financial advisers to become comfortable with advising members to take such a transfer where the circumstances are right for the member, and this appears to have resulted in a bit of a time lag before this recent increase in activity. 

"We expect members in schemes are talking to each other about the level of transfer values and this is increasing transfer activity. 

"Trustees are increasingly including information about transfer values in their member communications which has also increased awareness."

Fiona Tait, technical director at Intelligent Pensions, expected the high volume of requests for quotations to continue.

Ms Tait said: "It is buoyed up by three factors: the pension freedoms, high transfer values as result of record low interest rates and questions over the stability of some pension schemes following the demise of BHS.  

"Even if interest rates were to fall, pension freedoms means that this interest is not going to go away although it may plateau a little."

However, she warned the industry must make sure people seeking transfers are directed to the right people.

Patrick Connolly, communications manager of Chase de Vere, voiced some concerns at recent developments.

He said: "It seems that DB transfers are becoming almost mainstream, which is a particularly worrying development.

"It is likely that far too many people are being enticed by large transfer value figures and are making decisions to transfer which won't be in their best interest considering the valuable guarantees they will be giving up."

stephanie.hawthorne@ft.com