DB Transfers continue as advice crunch looms

Defined benefit (DB) transfer values increased to yet another record high during July, whilst the number of members taking a transfer continued at pre-lockdown levels, according to XPS Transfer Watch. XPS Transfer Watch monitors how market developments have affected transfer values for a typical member, as well as how many members are choosing to take a transfer from their DB pension scheme.

XPS Pensions Group’s Transfer Value Index rose from £259,700 at the end of June to reach a record high of £261,500 on 30 July, before falling back to end the month at £260,700. The small increase was the result of a fall in gilt yields during the month.

XPS Pensions Group’s Transfer Activity Index fell slightly in July compared to the previous month, although the number of completed transfers remained around the levels seen prior to the COVID-19 pandemic. Transfer activity in July was at an annual equivalent of 0.94% of eligible members, down from 1.05% in June. This represents 94 in every 10,000 eligible members transferring each year.

In market news, financial advice firms have continued to exit the DB transfer advice market, with some other firms greatly restricting the services that they offer. This is mainly a result of the recent FCA ban on ‘contingent charging’ from 1 October. There are concerns within the pensions industry about the reduction of capacity within the advice market at a time when there is an ever-greater focus on providing members with appropriate support.

Mark Barlow, Partner, XPS Pensions Group commented: “The continuing rise in transfer values is making them an increasingly tempting option for members. However, there are risks associated with transferring, and employers and trustees have a vital role in ensuring members have sufficient support available when considering such important decisions.

“As we expected, a number of financial advisors are leaving the DB transfer advice market following the ban on contingent charging. This will make it harder for members to get crucial advice, leaving them vulnerable to poor decisions or, at worst, pension scams. A recent XPS poll of more than 150 scheme representatives found that over 85% of employers and trustees agreed that pension schemes should help members to obtain financial advice. In the last year we have worked with schemes to make high quality financial advice available to 18,000 more pension scheme members.”