The number of people who went ahead with a pension transfer in Q4 2020 after receiving a quotation from an adviser fell to the lowest levels in six years, according to new analysis of the DB pensions transfer market by retirement consultancy Lane Clark and Peacock (LCP)
LCP highlighted how the lowest take-up rate of transfer quotations since 2015 came "as last October's FCA contingent charging ban bites".
The low rate continued the steady downward trend since peak take-up rates of 34% in 2017.
DB transfer activity has been in gradual decline for several years, but the ban on contingent charging seems to have reinforced this trend, effectively hollowing out the middle market."
"It appears the trend has been exacerbated by the FCA contingent charging ban on advisers which means all members now have to pay for transfer advice, whether or not a transfer is recommended", LCP said.
Bart Huby, Partner at LCP, said: "DB transfer activity has been in gradual decline for several years, but the ban on contingent charging seems to have reinforced this trend, effectively hollowing out the middle market.
In contrast, there has been much less impact on the largest pots, where the advice cost is still relatively modest compared to the amount transferred. But for average transfer values, an upfront advice cost running into thousands of pounds, and for advice which may be not to transfer in any case, is increasingly acting as a deterrent to transfer activity".
The overall take-up rate for quotations provided in Q4 2020, the quarter that the ban came into force and the latest where full take-up data is available, fell to just 15%.
This is the lowest level since 2015, when DB transfers took off in the wake of the Freedom and Choice reforms.
While the decrease is happening across all transfer sizes, it is particularly apparent in the middle to upper ranges of the market, with only the very largest transfers still going ahead in significant numbers, LCP said.
Take-up rates fell for transfers of all sizes, but the upper mid-range of the market saw the biggest drop.
Only 12% of transfers quoted between £400,000 and £800,000 in Q4 2020 were paid out compared with 32% in 2019 before the contingent charging ban and a high of 51% in Q3 2017.
In comparison the take-up rate for transfer quotations over £800,000 fell by a much smaller amount since 2019, from 48% to 35%.
Other key findings included:
- Quotation rates stabilised over Q1 and Q2 2021, sitting at an annualised rate of 5.4% of deferred members. This is close to pre-Covid rates, although the latest data on transfer requests indicates a fall in activity in both July and August.
- In the 12 months to 30 June 2021 LCP's administration teams provided transfer value quotations to just over 5% of deferred members, with a value of £538m in total. This compares to just over 5% and £551m in the 12 months to 30 June 2020. While there has been significant volatility in demand for quotations during the Covid-19 pandemic, overall transfer quotation activity remains significantly lower than the peak in activity seen in 2017 when almost 8% of deferred members requested transfer quotations with a total value of £778m.
- Quotation rates continue to be highest for those aged 55 and over. Just under 7.5% of members aged 55 and over requested a transfer quotation in the 12 months to 30 June 2021, compared to just under 3% of members under 50.
- As a proportion of all quotations in the year which were then paid, 62% were paid to members aged 55 and over and 10% were paid to members under 50.