COVID-19 crisis puts the brakes on transfer activity as quotation requests fall by a third

After a turbulent March, defined benefit (DB) transfer values experienced a much more stable April, increasing by around 3% over the month. However the number of members taking a transfer value continued to fall, reaching another record low, according to XPS Transfer Watch.  XPS Transfer Watch monitors how market developments have affected transfer values for an example member, as well as how many members are choosing to take a transfer.

XPS Pensions Group’s Transfer Value Index increased from £242,600 at the end of March, to £249,300 at the end of April. This movement was driven by a fall in gilts yields which was partially offset by a smaller fall in inflation.

XPS Pensions Group’s Transfer Activity Index reached another record low in April, since its launch in June 2019, with the number of completed transfers falling to an annual equivalent of 0.58% of eligible members, down from 0.76% in March (which was the previous record low). This represents just under 6 in every 1000 eligible members transferring. Additionally, requests for transfer value quotations were found to have fallen by just over a third compared to last April.

In market news, the Pensions Regulator issued further COVID-19 guidance on 29 April, covering communicating with members in the current environment. As well as recommending that trustees monitor transfer requests for signs of scam activity, the guidance includes a template letter to be issued to all members requesting a transfer value. The letter, which was jointly developed with the Financial Conduct Authority and the Pensions Advisory Service, urges members to be cautious when considering transferring out of a defined benefit pension scheme.

Mark Barlow, Partner, XPS Pensions Group commented: “The ongoing COVID-19 crisis has predictably caused a dip in transfer activity. The record fall will be a result of some schemes putting a temporary halt on transfers, as well as members (and their financial advisors) being less inclined to transfer in such uncertain times. We may see a rebound in activity as we emerge from lockdown, although the observed decline in requests in April suggests that any upturn will be some months away, due to the lag between transfer requests and completions.

“The Regulator’s updated guidance continues to focus on the risks associated with defined benefit transfers, particularly the heightened risk of pension scams in the current environment. The joint letter to members will help some to think twice before falling victim to a pension scam, although trustees should not think this is the complete solution. Pension schemes should put in place a range of scam protection measures, ensuring that they have multiple lines of defence to protect their members.”