A combination of lockdown and the contingent charging ban has contributed to a record low rate of pension transfers, according to LCP.
Data from the consultancy, published this morning (July 12), found fewer people are requesting defined benefit transfer value quotations and of those that do, fewer are going forward with the transfer.
The data found in the fourth quarter of last year 116 members out of every 10,000 requested a quotation, almost half the rate seen in the summer of 2017.
In addition, only 15 per cent of those who received a quote in Q4 2020 went on to complete their transfer.
This take-up rate of around one in seven quotes turning into a transfer compares with one in three in the middle of 2017.
LCP said the low rates were likely linked to the Financial Conduct Authority’s ban on contingent charging, which means members now have to pay for transfer advice whether a transfer is recommended or not.
There's also a link to Covid as numbers from 2021 show some recovery as lockdown gradually eased.
However, transfer rates have been falling over the past couple of years as the number of advisers offering advice in this area has continued to drop.
Bart Huby, partner at LCP, said: “A range of factors has combined to drive down volumes in the DB transfer market. Lockdown has clearly reduced activity, but even where people do ask for a transfer quote they are now far less likely to turn that into a pension transfer.
“The new rules on charging for transfer advice have only been in force for a few months, but there are already signs that people may be reluctant to pay thousands of pounds for transfer advice with the risk that they are advised not to transfer”.
Andrew Pijper, associate consultant at LCP, added: “Whilst regulators rightly stress the value of staying in a defined benefit pension, it will be important to ensure that those for whom a transfer may be a good idea can continue to access high quality and affordable advice.
“Pension schemes may have to do more in future to help members to access advice if these trends continue.”
Last week it was revealed that 11 advice firms have started to review their past pensions business after the regulator identified issues in 60 firms.
FTAdviser understands the City watchdog wants all 60 firms to have started their past business reviews before the end of December 2021.
This was on the back of the FCA’s work to crack down on mis-selling and poor advice in this area.
The City watchdog is expected to continue reviewing firms’ DB advice until at least spring 2022.
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