The number of savers opting to transfer out of their defined benefit pension schemes reached an all time low last month.
Data from XPS Pensions, published today (April 14), showed in March the number of members agreeing to a transfer fell to a low of 0.76 per cent of eligible members, as more savers chose to stay put due to market volatility caused by the coronavirus crisis.
The XPS Pensions’ Transfer Activity Index had recorded a rate of 0.89 per cent in February.
The pensions consultancy said although this was seemingly consistent with the levels recorded in the last year, it was the lowest recorded since the index started in 2018, reflecting a drop in activity due to Covid-19 and warnings from regulators.
The index also found transfer values fell 3 per cent from £249,700 at the end of February, to £242,600 at the end of March.
However, at various points throughout March transfer values suffered significantly lower rates.
In the week to March 19, values fell 11 per cent to a low of £222,800, a level not seen since July 2016, before recovering to finish the month on £242,600.
This was due to fluctuations in gilt yields as the Covid-19 outbreak took hold last month and created market volatility.
XPS Transfer Watch monitors how market developments have affected transfer values for an example member, as well as how many members are choosing to take a transfer value.
Mark Barlow, partner at XPS Pensions Group, said: “The unprecedented Covid-19 crisis has sent shockwaves through the financial markets, causing the greatest fluctuations we have ever seen in the Transfer Value Index.
“With such volatile markets, it is perhaps unsurprising that transfer activity has also fallen, to the lowest level since the inception of the Index, as members shy away from big financial decisions in the current climate.”
Steven Cameron, pensions director at Aegon said although it may be too early to see the true effect coronavirus has had on DB transfers, it will be interesting to see what the data shows over the coming months.
Mr Cameron said: "With the coronavirus affecting every aspect of our lives, it can be expected that many people will put off making major or irrevocable financial decisions right now including transferring out of a DB pension.
"With the time from first seeking advice and actually transferring often taking several months, it’s probably too early to tell if the slight fall in transfers is linked to the coronavirus crisis but XPS Pensions' figures in the coming months will be of particular interest."
He added: "On the one hand the recent stock market volatility has spelled out the reality of the guaranteed incomes that DB pensions offer. On the other hand, some experienced investors may feel like high transfer values and low stock markets make now a good time to transfer.
"The FCA has set out additional guidance for advisers including how to address misconceptions. In times of very high market volatility, advice on transferring will have to take even more account of attitude towards investment risk.”
Last month, The Pensions Regulator issued warnings and guidance on the DB transfer market, advising trustees to take their time and thoroughly check any transfers before agreeing to them.
The regulator has allowed DB schemes to delay member requests to transfer out of the scheme by up to three months.
This is to give trustees more time to calculate cash equivalent transfer values (CETVs) as due to falling markets caused by the coronavirus pandemic, it is now more difficult for them to be sure of the underlying value of pension funds.
Freezing DB transfers should also prevent individuals being targeted by scammers or making poor financial planning decisions in response to the crisis.
XPS's Mr Barlow said: “We welcome the regulator’s guidance on transfers as it provides comfort to those trustees looking to pause and take stock. However, we have found that around 75 per cent of our clients are still able to continue quoting and paying DB pension transfers.
“In these cases, member support services such as scam protection and high quality financial advice, will be crucial in protecting member outcomes in the current environment.”
amy.austin@ft.com
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