On the go: Cash equivalent transfer values have been significantly impacted by both the coronavirus pandemic and shake-up of defined benefit transfer advice rules, according to Barnett Waddingham.
The consultancy found the number of transfer quotes requested by members dropped between 20 and 40 per cent in each of the lockdowns, and overall was nearly down 10 per cent in the 12 months to March 2021.
Barnett Waddingham said the Financial Conduct Authority’s ban on contingent charging, which came into force in October 2020, and the reduction in the number of companies now prepared to give DB transfer advice, may have contributed to the fall in demand.
Contingent charging means clients only pay for the advice if they go ahead with a transfer. It applies to all transfers apart from consumers with certain identifiable circumstances, such as those suffering from serious ill health or experiencing serious financial hardship.
Despite the overall dip in activity, transfer activity bounced back in February and March 2021, with CETV requests about 50 per cent higher than on average compared with the previous 10 months, going back to the start of the pandemic. According to Barnett Waddingham, this could be due to a pent-up demand for members to consider their options.
Meanwhile, during March and April 2020, the average CETV amount shifted significantly in response to high levels of market uncertainty.
Previous analysis from Barnett Waddingham found that an average 60-year-old individual may have seen the value of their benefits change by as much as 15 per cent in the space of a two-week period in the middle of March 2020.
But while these significant short-term movements have not been seen since, a typical transfer value has fallen significantly during 2021, to the extent that CETVs may now be lower than at the end of March 2020 — possibly by as much as 7 per cent for a 60-year-old member, the consultancy said.
Mark Tinsley, associate at Barnett Waddingham, said: “Trustees and sponsors need to remain alert to market volatility and the knock-on impact for members looking to transfer out.
“Ensuring that the CETV terms remain robust to changes in market conditions is key, as well as having processes in place to temporarily suspend transfer value quotations in the event of extreme market movements.”
This article originally appeared on FTAdviser.com
