On the go: More than a third (37.5 per cent) of the defined benefit transfer market was advised by just three firms in 2020, as St James’s Place, Royal London and AJ Bell increased their market share “dramatically”, according to a report from LCP.
The consultancy analysed more than 1,500 transfers that were carried out between 2018 and 2020 by the schemes it administers, with a combined value of more than £500m.
It found that “vertically integrated wealth management advisers” retained a market share of around 26 per cent across that period, but with a 32 per cent rise in the average transfer value taking it above £520,000.
Of these, SJP saw the most significant growth. In 2020, for every £6 transferred out of a DB scheme administered by LCP, £1 went to SJP.
The survey also found that independent platforms enjoyed modest growth, with their market share rising from 23 per cent to 29 per cent of transfers, while their average transfer payment of £695,000 was up by almost a third.
Of these, AJ Bell was the predominant force, with its average transfer payment of £850,000 nearly twice the average across all transfers.
Insurers had a rougher time of it, the survey found. Their market share fell from 48 per cent in 2019 to 38 per cent in 2020. All of the four insurers with a market share of more than 5 per cent saw reduced levels of activity across the period.
Only Royal London was able to retain its overall market share (7.5 per cent), thanks to a 40 per cent increase in the average transfer it received, which rose to £420,000.
The overall market value remained unchanged, with a “significant fall off” in transfer activity balanced out by an increase in the average transfer value of around 25 per cent.
LCP said that the new rules introduced by the Financial Conduct Authority in October 2020 could “shake up” the market, impacting the vertically integrated advisers in particular because of new requirements around charges.
Advisers now have to “benchmark” their proposed destination for transferred funds against a workplace pension alternative. While workplace pension default funds are charge-capped at 0.75 per cent, vertically integrated wealth management advisers often charge double that rate in advice, product and platform fees.
The consultancy noted an estimate by the FCA that between 30 per cent and 45 per cent of around 100,000 DB transfers each year are cases where a member could transfer to a workplace pension, but at present only 1 per cent make that journey.
Bart Huby, partner at LCP, said: “Every year, hundreds of millions of pounds are transferred out of DB pensions and those who get to manage the funds post-transfer can benefit from substantial fees and charges.
“But new FCA rules could lead to a quiet revolution in this market. While a workplace pension is not going to be the right destination for everyone who wants a pension transfer, it would often imply much lower charges than for the products and investments generally used at present.”
Should the advice market take the new rules seriously, there could be “a big switch in the transfer market, with far more money flowing into master trusts and other workplace pensions and less going to in-house funds linked to advice firms”, Huby continued.
“The saving to individual members could amount to tens of thousands of pounds over their retirement.”
