DB transfers rise to £8.6bn in Q3 2018

Defined benefit pension transfer values increased to £8.6bn in the third quarter of 2018, data from the Office for National Statistics has revealed.

This is an increase of £0.3bn on Q2 when transfers amounted to £8.3bn. However, both figures are still lower than the £10.5bn reported in the first quarter of the year.

Commenting, AJ Bell senior analysis, Tom Selby, said: “Savers dashing to exit their defined benefit pension schemes has been one of the big stories of 2018, with the collapse of big-name sponsors like BHS and attractive transfer values tempting savers to swap stability for flexibility.

“The pension freedoms – and particularly the generous tax treatment of defined contribution pensions on death - may also have played a part, while many will inevitably have been tempted by the stellar returns on offer in recent years. Those who transferred in the hope of making a quick buck on the markets will have faced a rude awakening this year as stocks have tumbled in value.”

Selby said that transferring can be a “perfectly sensible move” in the right circumstances, but anyone taking this step needs to fully understand the risks involved.

“Over the longer term we expect the volume of transfers to decline, partly as a result of advisers exiting the market as the FCA tightens its focus on the market. Rising insurance costs will also likely push many advisers away from business that is deemed risky by PI firms. Despite that, the decline of DB is likely to be a story that runs through into 2019, particularly as once mighty high street giants struggle desperately to make ends meet.”

Last week, the Financial Conduct Authority (FCA) expressed its disappointment that less than half (49 per cent) of the pension transfer advice it reviewed was deemed as “suitable”.

The authority reviewed the advice given to 48,248 clients across 18 firms, focusing on the advice provided in relation to defined benefit (DB) pension schemes, which resulted in almost 30,000 actual pension transfers.

Following the FCA’s assessments, two firms voluntarily ceased providing pension transfer advice, while a further two varied their business models and surrendered their pension transfer advice permissions.

Though the work was targeted and the authority, therefore, cannot conclude that the results are representative of the whole market, it made clear that it is particularly concerned that firms are still failing to give consistently suitable advice, despite the feedback that has been provided.

On announcing the findings, the FCA said: “Our assessing suitability review in 2017 showed that around 90 per cent of advice on pensions and investments was suitable. It is unacceptable that pension transfer advice should persistently remain at such a low level in comparison to investment advice.”

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