XPS Transfer Watch - Scam Red Flags surge to 62% of cases

Activity in the Defined Benefit (DB) transfer market fell to a record low in September whilst transfers exhibiting red flags increased to a new high of 62%, according to XPS Transfer Watch.

XPS Transfer Watch monitors how market developments have affected transfer values for a typical member, how many members are choosing to take a transfer from their DB pension scheme, as well as how many scam red flags are being identified at the point of transfer.

XPS Pensions Group’s Transfer Activity Index fell to a record low in September, marginally lower than the level from April, in the immediate aftermath of the Coronavirus crisis. Transfer Activity in September was at an annual equivalent of 0.54% of eligible members, down from 0.67% in August. This represents 54 in every 10,000 eligible members transferring each year.

XPS Pensions Group’s Red Flag Index rose by 11%, with 62% of transfers covered by our scam protection service during September showing at least one warning sign of a potential scam. This was up from 51% in August and now represents almost two in every three members covered by the service.

XPS Pensions Group’s Transfer Value Index increased over the month, from £253,200 at the end of August to £255,800 at the end of September. This small increase was a mainly result of a fall in gilt yields.

Chart 1 - XPS Transfer Value and Transfer Activity Index

Chart 2 - XPS Red Flag Index

Mark Barlow, Partner, XPS Pensions Group commented: “It appears that the record low in transfer activity during October may be due to the difficulties members face in finding a suitable advisor following the withdrawal of many firms from the market.   Many advisers withdrew from the market in part due to the ban introduced on contingent charging.”

Helen Cavanagh, Consultant, XPS Pensions Group commented: “The Red Flag Index hit a worrying new high of 62% during September. This is a continuation of the rise seen since the start of lockdown and, within these figures, we see a significant number of members not fully understanding the fees they are paying.”

In market news, the Pension Scams Industry Group’s submission to the Work and Pensions Select Committee has proposed an amendment to the Pension Schemes Bill which would give trustees the ability to restrict statutory transfer rights in cases where a scam is suspected. The Pensions Regulator submitted a similar proposal, suggesting an ability to grant an extension to transfer deadlines where a scam is suspected.

Mark Barlow, Partner, XPS Pensions Group added “The proposed amendment to the Pension Schemes Bill to allow trustees to stop a transfer where they suspect a scam will provide another weapon in the war against pension scams. At the moment, as transferring is a statutory right, many trustees feel unable to stop transfers when a scam is suspected. Such an amendment would give them more trustees more comfort in taking action to protect member outcomes. However, this will create even more responsibility for trustees which they will need to take steps to address.”