The UK defined benefit (DB) pension transfer market is in a “slump” amid an exodus of specialist advisers and falling transfer values, LCP has stated.

As reported by our sister title, Pensions Age, LCP warned that some members who could benefit from a DB pension transfer may lose out due to a smaller pool of advisers and plummeting transfer values.

An LCP freedom of information request to the Financial Conduct Authority (FCA) showed that the number of firms holding the relevant permissions to provide DB transfer advice fell from around 3,000 to 1,048 in the four years to May 2023.

This means that it is now much harder for DB scheme members to find an adviser as they approach retirement, LCP warned.

Furthermore, DB transfer values have fallen since the beginning of 2022, in some cases by half.

A typical member aged 55 with a pension of £10,000 a year payable from 65 had a transfer value of around £250,000 at the beginning of 2022, but that has now fallen to approximately £130,000.

This reduction reflected the rise in gilt yields, LCP noted, and meant that the option to take a transfer was looking less valuable to members than it may have done a few years ago.

LCP’s latest data showed that the number of members transferring was at an all-time low, with only 6 per cent of quotations issued in Q4 2022 subsequently being requested by members to be paid out.

This take-up rate was around a third of the rate LCP observed over the previous five years to 2022.

The consultancy noted that transfer rates were also being impacted by changes to the FCA’s rules and guidance around pension transfer advice, and greater scrutiny from the FCA and professional indemnity insurers on advisers.

While LCP acknowledged these changes had improved the quality of advice, it said it had also made advisers more cautious when it came to recommending a transfer.

“There is a slump in the pension transfer market with a double whammy of plummeting transfer values and an apparent exodus of advisers,” commented LCP partner, Clive Harrison.

“A DB pension transfer could be in the best interest of certain members, but it is likely that we continue to see low levels of transfer rates for the time being. This could mean some people don’t get the best deal in their retirement.”

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