Interest in transfers out of defined benefit pension schemes has dipped again during the second lockdown, according to consultants Lane Clark and Peacock.
But the firm has warned a flood of insolvencies in 2021 could lead to a new ‘gold rush’ for DB transfers in the new year as household budgets are squeezed.
The chart below shows the number of requests for DB transfer quotes across more than 80 schemes administered by LCP for each week since the start of 2020.
The schemes cover 65,000 members of whom roughly half have not yet taken a pension and could be eligible to transfer out.
The colour coding shows the extent of ‘lockdown’ restrictions in force at each point:
At the start of the year, prior to the first lockdown, there were just under 50 quotation requests in a typical week among these schemes, and this fell by half during the first lockdown.
Volumes recovered somewhat over the summer and early autumn, rising to around 37 per week, but have fallen back to around 30 requests since the start of November.
The index records the second lockdown has not led to the same slump in demand for transfer quotes as it had a modest depressing effect on interest in transfers.
Looking ahead to 2021 however, LCP believes that there could be a growth in interest in DB transfers.
This is because a range of government support mechanisms such as the furlough scheme will come to an end and it is expected that corporate insolvencies will rise.
This could put pressure on household budgets leading more people aged 55 or over to consider accessing their accrued pension rights.
LCP says large-scale redundancies could lead people to consider accessing the typically larger sums tied up in their DB pensions.
It adds this potential increase in transfer activity in 2021 strengthens the case for trustees to ensure that scheme members can access high quality impartial transfer advice.
LCP partner Bart Huby says: “Interest in a potential pension transfer has been depressed during 2020, especially during the first and second lockdown periods. But 2021 may be very different and there is a real risk of a ‘gold rush’ of people looking to access their DB pensions.
“Emergency government measures to support businesses are expected to end in the first half of 2021 which could lead to a surge in unemployment and companies going bust.
“Older workers who lose their job may be very tempted to consider accessing their DB pension in order to meet vital household bills. This makes it all the more important that schemes do what they can to help members access affordable and high quality transfer advice so that members can make a decision that is right for them.”