"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."
At the start of the year, prior to the first lockdown, there were just under 50 quotation requests in a typical week amongst 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. Although the second lockdown has not led to the same slump in demand for transfer quotes, LCP says it seems clear that it has still 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 widely expected that corporate insolvencies will rise significantly. This could put pressure on household budgets leading more people aged 55 or over to consider accessing their accrued pension rights.
There was some evidence from FCA statistics for the summer of 2020 to suggest a growth in the number of people taking modest sums from their Defined Contribution pension pots, possibly reflecting short-term financial pressures. But LCP warns that large-scale redundancies could lead people to consider accessing the typically larger sums tied up in their DB pensions. In addition, it says there is already some evidence that in companies where a bankruptcy is expected, there can be a flurry in interest in transferring out in order to reduce the risk of ending up in the Pension Protection Fund.
Bart Huby, partner at LCP, said: “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.”
