Defined benefit (DB) pension transfers dropped by more than a third in the first quarter of 2018, suggesting that greater regulatory scrutiny and a dip in transfer values have curtailed the boom in savers giving up guaranteed retirement benefits.
The number of individuals swapping final salary benefits for defined contribution schemes fell 34 per cent in Q1 2018 to 21,482, according to figures released by the FCA following a Money Management freedom of information (FOI) request.
This ends five quarters of successive climbs, and represents the lowest quarterly level since the 18,408 transfers reported in the first quarter of 2017. The total number of DB transfers last year topped 100,000, according to the watchdog, peaking with 32,478 in the fourth quarter.
The surge in transfers has been driven by members seeking to forfeit guarantees for greater flexibility. Sharp increases in the cash equivalent transfer values of their pensions, some reported to be in excess of 50 times annual income, have attracted savers' interest. These values fell back slightly at the start of 2018 as gilt yields rose.
Advisers' role, meanwhile, has become the subject of increased scrutiny from the FCA, MPs and others in the aftermath of the restructuring of the British Steel Pension Scheme. A recent Parliamentary report said scheme members were "shamelessly" exploited by unscrupulous advisers who encouraged them to give up lucrative benefits in exchange for inferior plans. The FCA, which deemed that only half of the British Steel transfers it assessed were suitable, is now pondering a ban on contingent charging practices.
“It seems clear that many firms are now either giving the market a wide berth either by choice or indirectly by prohibitive [professional indemnity insurance] terms and exclusions. You do wonder how many transfers were at the advisers' instigation," said Paul Gibson, chartered financial planner at Granite Financial Planning.
"There will still be a market for transfer for DB transfers but the “boom” may be over, which in my view is no bad thing,"
Tom Selby, senior analyst at AJ Bell, said the fourth quarter figures may prove artificially high due to December marking an original transfer deadline for British Steel workers. But he noted that other factors could now be quelling transfer activity.
Around 2,600 steelworkers had transferred out of the scheme by the time of the final February 2018 deadline.
Mr Selby said: “The FCA is obviously placing a lot of focus on this area at the moment, and its decision to take action against certain firms - notably those operating an outsourced transfer advice model - will have cut the supply of advisers able to do this kind of business. The regulator also U-turned on plans to reverse its initial assumption that DB transfers are not in members’ best interests, which might also have spooked some advisers from the market.”
The findings follow on from the Lang Cat consultancy's latest Platform Market Scorecard, which found that gross pension inflows were 16 per cent lower in Q1 compared with an average 5 per cent quarterly drop across all investment wrappers. A full report on the latest DB transfer developments will be published in the July issue of Money Management.