More than a quarter of trustees have taken advantage of The Pensions Regulator’s Covid-19 guidance and chosen to suspend defined benefit transfers.
According to research from pensions advisory Isio, 27 per cent of trustees out of the 380 surveyed suspended cash equivalent transfer value (CETV) quotations, 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 the pension funds.
The regulator’s guidance, published at the end of March, explained trustees of DB schemes may choose to delay new member requests for transfer quotations by up to three months.
Mike Smedley, partner at Isio, said by the time the three months have ended trustees should be in a better position to provide CETVs to members leading to fewer trustees choosing to suspend.
Mr Smedley said: “It is more likely that smaller schemes choose to suspend CETV quotations as many are worried about the impact of DB transfers on the scheme’s funding levels.
“Meanwhile, larger schemes are more likely to choose to suspend a transfer due to concerns about scams, rather than how it will affect their funding amid the ongoing coronavirus crisis.”
Steven Cameron, pensions director at Aegon, said trustees were only postponing DB transfers “when there is a real need to”.
Mr Cameron said: “It was always the intention of TPR’s guidance for trustees to only suspend CETV valuations where appropriate, whether this is due to surge in demand, to have more time to look at calculations or because scheme funding has worsened.
“The fact 73 per cent are still quoting is good news for both advisers and clients where a DB transfer is the right thing to do, for example when in poor health.”
He added that many trustees weren’t choosing to suspend transfers for the entire three months but instead were only applying limitations for a few weeks in some cases if they had a valid reason to do so.
Mr Cameron said: “There is a new requirement on trustees and schemes to send out a letter signed by the Department for Work and Pensions, TPR and the Pensions Advisory Service to warn savers to think hard before transferring. It will be interesting to see over the coming months if this letter changes any behaviours.”
Meanwhile, Steve Webb, partner at LCP, said it was likely more trustees would begin to resume DB transfers in the coming weeks as the level of demand from members has been low since the lockdown began.
Mr Webb said: “New inquiries around DB transfers have been very subdued since lockdown which suggests that resuming the transfer process is unlikely to destabilise most schemes.
“Assuming that financial markets are now in a period of greater stability, schemes may also now start to feel that they can issue guaranteed CETVs with more confidence than a month ago."