AJ Bell, St James’ Place and Royal London dramatically increase their dominance of the DB transfer market

AJ Bell, St James’ Place and Royal London have increased their overall share of the DB pension transfer market dramatically, with 37.5% of all transferred amounts going to them in 2020. In Follow the money – where are members taking their DB transfer values? LCP has analysed more than 1,500 transfers between 2018 and 2020 with a combined value of over half a billion pounds from the schemes that it administers.

The report highlights the winners and losers in the market across 2020:

• The relative position of vertically integrated wealth management advisers remained steady, with a similar share of transfers (around 26%) and a 32% rise in the average transfer value to over £520,000. Amongst these firms, however, St James Place (SJP) increased their market share dramatically, so that in 2020,, for every £6 transferred out of a DB pension scheme administered by LCP, £1 went to SJP.
• The independent platforms enjoyed market share rising from 23% to 29% of transfers, and additionally saw their average transfer payment growing by a third to nearly £695,000. In this sector, AJ Bell similarly stepped up their share to over 13% of all transferred amounts, to become the dominant firm in this sector. The average transfer payment taken to the AJ Bell platform in 2020 was around £850,000, nearly twice the average across all transfers.
• In contrast, the insurers’ share of transfers fell from 48% in 2019 to 38% in 2020, with each of the four insurers that have more than 5% of market share receiving reduced numbers of transfers. Amongst insurers, only Royal London were able to maintain their market share, at around 7.5% of all transferred amounts, supported by an increase in the average transfer they received of over 40% to nearly £420,000.

LCP’s analysis also shows that while there was a significant fall off in transfer activity over the year, the average transfer value increased substantially, by around 25%. This means that the total amount transferred out was broadly the same.

LCP believes that new rules introduced by the FCA in October 2020 could shake up this market, and in particular have an impact on the ‘vertically integrated’ wealth management firms. Since 1st October last year, advisers have had to ‘benchmark’ their proposed destination for transferred funds against a workplace pension alternative. The importance of this is that workplace pension default funds are charge-capped at 0.75%. By contrast, a vertically integrated advice firm might be charging more than double this amount through a combination of ongoing advice fees, platform fees and product fees.

The FCA estimates that of around 100,000 DB transfers per year, between 30% and 45% would be cases where the member could transfer to a suitable workplace pension. Currently only around 1% of transfers are being taken to workplace pensions, so if the new rules are effective, this could mean far less pension transfer money flowing into ‘vertically integrated’ providers (and to a lesser extent, into independent platforms) and more into workplace pensions such as Master Trusts.

Commenting, LCP Partner Bart Huby said:

“Every year, hundreds of millions of pounds are transferred out of Defined Benefit 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. Whilst 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.

Provided that the advice market takes these new rules seriously, we could see 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. The saving to individual members could amount to tens of thousands of pounds over their retirement”.