The number of defined benefit (DB) pension transfers ‘skyrocketed’ in Q1, according to the latest research from Xafinity, which reported a 166% increase year on year.
The research found the number of completed DB transfers had been relatively stable month on month up until October last year. Since then activity ‘increased significantly’ and the number of transfers completed more than doubled.
The figures, collected on a monthly basis, looked at the number of transfers completed at schemes Xafinity works with, as well as the number of requests for transfer value quotation received, which also increased 70% over the three month period.
Xafinity said the upward trend looked set to continue as transfer values recorded by its Transfer Value Index (TVI) also remained high.
Values stayed flat in January but began to rise again in February, when they reached £237,000 – just £6,700 shy of their all-time high of £244,000 in October 2016. However, in March values fell back slightly, by about 1% to £235,000.
The index tracks the transfer value that would be provided by an example DB scheme to a member aged 64 who is entitled to a pension of £10,000 each year, starting at age 65. It increases each year in line with inflation.
Regulation in the spotlight
Head of proposition Paul Darlow (pictured) said financial conditions over the past year had resulted in an increase of ‘partial transfers’ as well as full transfers.
He explained it was difficult to keep track of the amount left in each part of a pension pot after a partial transfer as pension pots included many different ‘tranches’ that can have different value increases attached to them according to when the policy was taken out.
He said: “This increase in the number of people opting to transfer their DB pensions has put regulation of this market firmly in the spotlight.
“While the flexibility around partial transfers would be a good thing there are still barriers to overcome, with the main issue for many scheme providers being the administration complexity.
“With two documents on DB transfers published by the Financial Conduct Authority (FCA) already this year and the possibility of a thematic review impending, it is clear 2017 is going to be another interesting year for DB schemes.”
The FCA has confirmed it will publish a consultation paper on advice and safeguarded benefits, which includes DB transfers, “in due course”. The regulator initially shared its plans on 11 April in its guidance consultation on streamlined advice services.
It intends to look at the “additional considerations” involved in transferring from DB to defined contribution (DC) schemes.
Aegon pensions director Steven Cameron urged the regulator to begin its consultation “urgently” to avoid “consumer detriment” and give advisers confidence they are meeting FCA expectations.