A typical cash equivalent transfer value (CETV) for a 60 year old defined benefit (DB) pension holder fell by approximately 7 per cent in the third quarter of 2023, analysis by Barnett Waddingham has shown.

The decline continues the general trend in CETVs observed over the past year, with Barnett Waddingham revealing that a typical CETV for a 60 year old fell by around 18 per cent for inflation-linked increases and by roughly 15 per cent for fixed increases over the 12 months to 30 September 2023.

It found that there were two “distinct periods of interest” over the year, the first of which was the “extreme volatility” in October last year, which saw huge fluctuations in transfer values in a short space of time.

Following this, since November 2022, there has been a relatively steady decline in CETV amounts, which Barnett Waddingham said reflected the gradual increase in long-term gilt yields over the past 10 months.

Total transfer payments in Q3 were estimated to have fallen by around 80 per cent compared to pre-pandemic levels.

DB pension transfer activity continued to be very low, with the analysis finding that there was a 3 per cent decrease in transfer quotations issued in Q3.

This meant that Q3 2023 was the third lowest quarter for the number of quotations issued since Barnett Waddingham started analysing data in 2019, with Q2 2020 and Q4 2022 the only quarters with less activity.

Barnett Waddingham said that the low level of quarterly change in activity reflected the relatively stable market conditions, and that the continued low levels of member interest in the CETV option was likely due to the significant falls in CETV amounts over the past couple of years.

The number of transfer value payments also remained at very low levels in Q3, with the percentage of quotations implemented falling by around 15 per cent from Q2 to Q3, meaning Q3 2023 saw the lowest number of transfer payments since the consultancy started analysing the data.

“If the focus is on being paternal and supportive, then the developments over the past year are less relevant,” commented Barnett Waddingham partner, Liam Mayne.

“Indeed, amid the ongoing cost of living crisis, assisting members in making informed decisions is more important than ever, something that can potentially be achieved by collaborating with a vetted independent financial adviser.

"Conversely, if the primary objective is to reduce risk or cost, then schemes may find that the expenses associated with transfer exercises and initiatives are no longer justified.

“Alternatively, further action may be required to achieve comparable outcomes, such as increasing transfer values above minimum levels to counterbalance the declines in pension valuations, something that may be supportable by improvements in funding positions.”

Share Story: