Significant fall in people transferring out of Defined Benefit pensions
Of 87,491 people to receive advice on Defined Benefit (DB) pension transfers between October 2018 and March 2020, nearly 50,000 (57%) were recommended to make the move.
However, 38,000 (43%) were recommended not to transfer or convert their DB pension.
The regulator, the Financial Conduct Authority (FCA) said this indicates that “firms are starting to act more in line with our expectation and messages that for DB advice, in most cases, a transfer is not in the client’s best interest”.
By comparison, the conversion rate – people transferring out – peaked at 72% in 2017, before falling to 69% between April 2015 and September 2018, down to 57% in the latest data set.
It also revealed that of those clients advised not to transfer, 2,936 (8%) insisted on the move.
The FCA also found a big drop in the number of firms authorised to give DB transfer advice – from 3,042 in October 2018 to just 1,965 in July 2020.
In total, firms advised on a total value of £30.3bn between October 2018 and March 2020. This is made up of £20.1bn in recommendations ‘to transfer’ and £10.2bn in recommendations ‘not to transfer’.
Steve Webb, partner at LCP said: “It is a welcome trend that historically high rates of recommendations to transfer out of Defined Benefit pension schemes are now on the decrease. But the DB transfer market remains a source of real concern. The supply of advisers has fallen dramatically in recent years, and recent regulatory changes plus the cost of obtaining insurance is likely to reinforce this trend.
“Members are likely to find it increasingly difficult to source high quality impartial advice if left to their own devices. This data reinforces the case for pension schemes to appoint one or more high quality advice firms to help members make good choices about pension transfers.”