Almost £10bn was transferred out of defined benefit (DB) pensions in the final quarter of 2019, up from just over £5bn in the previous quarter, according to new data released by the Office for National Statistics (ONS).

AJ Bell highlighted that around 60% of employer contributions to DB schemes were “sucked up” by deficit reduction contributions, as the UK entered lockdown.

The investment platform, however, suggested the numbers are likely to “vary significantly” from quarter-to-quarter, as they include insurance ‘buy-out’ deals as well as individuals quitting DB schemes.

The ONS data revealed that the total market value of pension funds had reached £2.2trn at the end of 2019, while gross assets excluding derivatives was £2.4trn.

AJ Bell senior analyst, Tom Selby, commented: “The scale of individual DB transfer activity in recent years has been staggering, driven by a perfect storm of persistently low gilt yields, the greater flexibility in defined contribution schemes created by the 2015 pension freedoms and uncertainty about the future of many companies sponsoring such schemes.

“This uncertainty has only been added to in recent months as COVID-19 has forced large swathes of the UK economy into stasis. As gilt yields have been driven ever lower, liabilities and deficits have surged, with the latest Pension Protection Fund (PPF) figures showing aggregate deficits had reached £176bn at the end of April.

“DB contributions designed to plug deficits (‘deficit reduction contributions’) sucked up 60% of all DB contributions in Q4 2019, highlighting the challenge many companies with yawning pension black holes faced as they entered this crisis.

“While the regulator has taken a pragmatic approach in relation to paying off deficits at a time when many companies are struggling to keep the lights on, the reality remains that, at some point, the pensions piper will need to be paid.”

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