Cash equivalent transfer values (CETVs) have been significantly impacted by both the coronavirus pandemic and the regulator’s shake-up of defined benefit transfer advice, according to Barnett Waddingham.
According to the consultancy firm, the number of transfer quotes requested by members dropped between 20 per cent and 40 per cent in each of the lockdowns and was nearly down 10 per cent overall in the 12 months to March 2021.
Barnett Waddingham has said the Financial Conduct Authority’s ban on contingent charging, which came into force in October 2020, and also the reduction in the number of firms now prepared to give DB transfer advice may have contributed to the fall in demand.
Contingent charging means a client only pays for the advice if they go ahead with a transfer. It applies to all transfers apart from consumers with certain identifiable circumstances, such as those suffering from serious ill-health or experiencing serious financial hardship.
Despite the overall dip in activity, transfer activity bounced back in February and March 2021, with CETV requests about 50 per cent higher than seen on average in the previous ten months going back to the start of the pandemic.
According to Barnett Waddingham, this could be due to a pent-up demand for members to consider their options.
Meanwhile, during March and April 2020 the average CETV amount shifted significantly in response to high levels of market uncertainty.
Previous analysis from Barnett Waddingham found that an average 60-year-old may have seen the value of their benefits change by as much as 15 per cent in the space of a two-week period in the middle of March 2020.
But while these significant short-term movements have not been seen since, a typical transfer value has fallen significantly during 2021 to the extent that CETVs may now be lower than they were as at March 31, 2020 – possibly by as much as 7 per cent for a 60 years old member, the firm said.
Mark Tinsley, associate at Barnett Waddingham, said: “Trustees and sponsors need to remain alert to market volatility and the knock-on impact for members looking to transfer out.
“Ensuring that the CETV terms remain robust to changes in market conditions is key, as well as having processes in place to temporarily suspend transfer value quotations in the event of extreme market movements.”
Back in March 2020, The Pensions Regulator published guidance allowing DB schemes to delay member requests to transfer out of the scheme by up to three months.
This was to give trustees more time to calculate CETVs as due to falling markets caused by the coronavirus pandemic it was more difficult for them to be sure of the underlying value of pension funds.
amy.austin@ft.com
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