Are transfer levels falling?
Pardon the Interruption
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With several financial adviser firms leaving the pensions transfer market and incoming rules giving trustees power to stop suspicious transfers, how has the defined benefit transfer market developed?
Some trustees say that transfers have reduced over the past year or so, as the average member will find it increasingly difficult to transfer. Those with pension assets of more than £30,000 have to take financial advice on leaving their DB scheme, but there are few advisers left in this market – some of them failed to renew their professional indemnity, others had their permissions removed by the regulator.
The £6.9bn Diageo Pension Scheme saw £115m worth of individual transfers out in the year to March 2020, but only £56m a year later. While there may be particular reasons for this, the XPS Transfer Activity Index in October 2021 showed that transfer volumes were similar to the ones seen over the past 12 months but slightly lower than over the preceding year. An annualised rate of 56 members out of every 10,000 transferred their pension in October.
Mark Barlow, head of member options at XPS Pensions Group, said the lower transfer activity compared with the year to October 2020 “could suggest that the contingent charging ban and contraction of the IFA market may have resulted in fewer members being able to access the financial advice needed to transfer”.
Will red flag rules make volumes drop further?
New rules empowering trustees and pensions managers to stop suspicious transfers are coming in at the end of this month. The industry has welcomed the change, although some feel it should have been made some years ago, as it could have prevented thousands of scams.
XPS says that its Red Flag Index, which gives the percentage of transfers that showed at least one warning sign indicative of a potential scam or poor member outcomes, has declined steadily over 2021, after hitting a high of 76% in December 2020, but remains worryingly high.
Helen Cavanagh, client lead for the XPS Member Engagement Hub, said: “We welcome that the new transfer regulations give trustees the power to block a transfer they have concerns about, and we expect that they will help in the fight against pension scams. However, as the regulations only cover a limited number of scam warning signs, passing the conditions in the regulations won’t always mean that the transfer isn’t a scam. Trustees should also be looking out for wider scam warning signs as part of a robust scam protection process.”
What is the experience on your schemes – are transfer volumes lower than last year?
