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Now we are settled in to the new way of working, our thoughts move to the impact of how the changes of the last couple of months might impact future experience.
We have previously commented on temporary suspensions of both deficit reduction contributions and the quotation of transfer values – actions that undoubtedly will continue to evolve for many schemes – but what reactions are we seeing from members? The Pensions Regulator (TPR) issued guidance in late April, aimed at those looking to transfer their benefits from defined benefit (DB) to defined contribution (DC), warning that “a defined benefit transfer is unlikely to be in their interests”. This suggests that there was a surge in members looking to liberate their DB pension pots however the data suggests this is not (yet?) the case.
Chart 1 - Weekly transfer quotation requests
note* Weeks 15, 16, 19 and 22 were short weeks due to Bank Holidays and consequently would be expected to have lower activity levels.
Over the first eleven weeks of the year, data from Barnett Waddingham’s administration clients (c.370 schemes) indicated the average weekly level of member enquiries in relation to transfer requests was just over the 200 mark. This fell as we entered lockdown – no doubt reflecting other, more immediate, concerns – however this trend reversed and could now be levelling out? Looking over the period of lockdown that average has crept back up – averaging around 120 for the whole period but up to around 150 per week over the last 4 weeks. Last week showed a slight dip – this might reflect natural variation or could potentially be linked to changes in guidance around social distancing, travel and non-essential facilities. It is still unclear if people are looking to get their hands on their pension pots (as suggested by TPR and others) or simply that, having addressed the initial changes to lifestyle imposed on us all, time is available to resume deferred activities.
Intuitively we would expect to see levels continue to increase and potentially pass the average from earlier in the year reflecting “catch-up” from the inactivity in this initial period of lockdown. We are conscious of this latent demand and the additional supporting communications to aid members to make good decisions – as an industry we need to be geared up to respond accordingly.
Our conversations with IFAs suggest that whilst bulk exercises are understandably being deferred they are not seeing a similar fall in new enquiries. This is in line with the payment experience which, although timing is different due to the lag between requests, provision of advice and the payment of transfers; does not appear to show the same pattern of reductions. (See gold line in Chart 2).
Chart 2 – Weekly transfer quotation and payment requests
So whilst there were clear, perhaps temporary, reductions in member requests the need for liquidity (or cash inflow from contributions) remains to meet transfer payments which have remained fairly steady over the period.
Please note the picture here is drawn from considering the average position across a large and varied client base. Each individual scheme will be experiencing, and should consider, its own scheme specific situation. As noted by TPR, trustees and sponsors should remain alert to any trends or spikes in activity seen in their own schemes and respond accordingly.
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