DB pension transfer volumes end 2023 at five-year low

DB pension transfer volumes end 2023 at five-year low

22 Jan 2024

The end of 2023 saw the rate of people transferring out of their DB pension fall to a five-year low, research from XPS Pensions Group has found.

The pensions consultancy’s Transfer Activity Index saw a steady downward trend across 2023. At the end of December, the tracker registered an annualised rate of 18 members in every 1,000 transferring their benefits to alternative arrangements, which is a new index low.

The continued fall in transfer activity is despite an end-of-year bounce in transfer values from October’s record month-end low. XPS’s Transfer Value Index showed that the quoted value of a typical pension transfer increased by over 5% in December, and by 6.5% over the last quarter of 2023 to £164,000. The primary driver for this rise is the fall in gilt yields over the latter months of the year. December marked the first time the index has seen two consecutive month-end increases since late 2021.

90% of cases reviewed by the XPS Scam Protection Service in December raised at least one scam warning flag, according to XPS’s Scam Flag Index. This represents no change since the previous month. The Scam Flag Index has remained high throughout 2023, although a slight dip in the second half of the year may have been down to more members transferring to purchase an annuity, which has a lower risk of scam activity. The DWP published their 18-month review of the 2021 Transfer Regulations during the year and committed to working with the industry to consider if changes could be implemented to reduce unnecessary warning flags and improve the transfer experience for members.

The consultancy’s Annual Member Outcomes Survey found that transferring out of a DB scheme remained a more popular option amongst the over 55s despite falling transfer values.. The consultancy also found that there was a continued increase in the rate of smaller pension pots being transferred, with 40% of transfer values being under £100,000 and one in six falling under the £30,000 threshold which means members are required to take independent financial advice.

Mark Barlow, Head of Member Options, XPS Pensions Group, said: “Despite transfer volumes hitting record lows, our research highlights that transferring as part of wider retirement planning remains a popular option for those over age 55.

“Given that, it’s important that schemes provide support to members to help them make appropriate decisions for their circumstances. We are particularly concerned that a rise in smaller transfer values may put more of the most vulnerable members at risk of being scammed, as they are not required to take financial advice. Schemes should consider how they can best support these members as they begin to access their pension pots.”

Chart 1 - XPS Transfer Value Index

Chart 2 - XPS Transfer Activity Index

Chart 3 – XPS Scam Flag Index

Table 1 – Transfer Watch over the past 12 months

   Source: XPS Pensions Group – All data is at the end of each month.

Notes:

XPS Transfer Watch is part of XPSArena, a free to access destination for learning support and development for people in pensions. Users will be able to scrutinise the latest data contributing to the headline Scam Flag Index, with filters available to compare warning flag prevalence over time and by several demographic groupings.

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 value.

XPS Pensions Group’s Transfer Value Index shows the estimated Cash Transfer Value of a 64-year-old member with a pension of £10,000 a year with typical inflation increases. The value changes over time with market movements. Mortality assumptions are reviewed periodically.

XPS Pensions Group’s Transfer Activity Index represent the annualised proportion of members that transfer out of pension schemes administered by XPS. If replicated across all private sector, funded, UK, DB schemes this indicates that approximately 20,000 DB members leave their schemes each year

XPS Pensions Group’s Scam Flag Index tracks the percentage of monthly transfers reviewed by the businesses’ scam protection service that are identified as having warning ‘flags’ which indicate that the member is at risk of being scammed. The flags monitored include both the DWP’s set list of amber and red warnings and further areas of concern identified and monitored by XPS’ Scam Protection Service. The service is provided to the Trustees of approximately 350 occupational pension schemes.