Defined benefit (DB) pension transfer activity declined to a record low in Q4 2020 following the ban on contingent charging, analysis from LCP has revealed.

It found that in the first quarter after the ban came in (Q4 2020), 17 out of every 10,000 deferred DB members obtained a quote and went on to transfer out.

By comparison, 25 in every 10,000 deferred members transferred after receiving a quote in Q3 2020, while Q3 2017 saw 66 in every 10,000 transfer.

Furthermore, 116 members out of every 10,000 requested a quotation in Q4 2020, around half the number seen in the summer of 2017, although LCP stated that there were early indications that this figure was recovering as lockdown eased in 2021.

Fifteen per cent of those who received a quote in Q4 2020 have now transferred, equal to around one in seven quotes. This rate stood at one in three in mid-2017.

LCP attributed the decline to several factors, including the contingent charging ban, lockdown and the continuing decline in the number of financial advisers willing to provide DB transfer advice.

“A range of factors has combined to drive down volumes in the DB transfer market,” commented LCP partner, Bart Huby.

“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.”

LCP associate consultant, Andrew Pijper, added: “Whilst regulators rightly stress the value of staying in a DB 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.”

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