30 November marked three years since the implementation of the Department for Work and Pensions’ (DWP) pension transfer regulations.
New Freedom of Information (FOI) data from the Money and Pensions Service (MaPS) gathered by financial adviser and pension provider, Quilter, spanning the full three year period, reveals that despite persistent calls from industry for improvements, major issues continue to plague the regulations.
It is positive that thousands of people have been saved from fraudsters since the introduction of the regulations in November 2021, but the huge number of pension transfers that have been needlessly interrupted, and the knock on impact this has had on pension savers, greatly clouds its success.
The industry has repeatedly called for legislative change to prevent these unnecessary delays in pension transfers, yet the DWP has taken little visible action.
This has resulted in 27,900, or four in five, out of a total 33,917 amber flags being raised for either an unknown reason or for a potentially low risk transfer relating to overseas investments, according to the latest figures from MaPS.
Of the 33,917 MoneyHelper Pension Safeguarding Guidance (PSG) sessions conducted since the pension transfer regulations were introduced, almost half (15,677) were conducted with an attendee who was unaware as to why an amber flag had been raised on their pension transfer. This suggests they may not understand why they needed to attend the appointment, and therefore could have a significant impact on customer engagement and the effectiveness of the PSG sessions.
A further 12,223, or more than a third, were due to a flag being raised on potentially low-risk transfers relating to overseas investments. In its review of the regulations, published more than a year ago, the DWP acknowledged that the regulation wording in relation to overseas investments was causing delays and issues for many pension savers. However, since then there appears have been little effort to resolve the issue so customers looking to transfer their pensions have continued to face unnecessary delays.
| Reason for amber flag | Number of amber flags raised (Dec 21 – Oct 24) |
| Complex investment structure | 638 |
| Evidence provided is not genuine | 303 |
| High risk/unregulated investments | 1,885 |
| High volume to the same scheme | 97 |
| High volume with the same financial adviser | 78 |
| Overseas investments | 12,223 |
| Unclear/high fees | 3,016 |
| Unknown | 15,677 |
| Total | 33,917 |
The pension transfer regulations will have helped prevent some pension savers from falling victim to scams. However, for those who are not so lucky, not only have they faced the stress of being scammed in the first place, but many have also been subject to further injustice at the hands of HMRC in the application of the pension tax system.
On 31 October, Margaret Snowdon launched a petition via the pension scams industry group (PSIG) for change in the way HMRC treats pension and investment fraud victims. This is because on top of what can be a significant loss of retirement savings following a scam, HMRC in certain circumstances also applies punitive unauthorised payment charges of up to 55% – plus interest – on the member or a scheme that has fallen foul to a pension scam. This piles loss upon loss, leaving victims devastated.
Quilter is therefore not only reiterating its call for the DWP to ensure changes are implemented swiftly to improve the pension transfer experience, but also implores HMRC to review its rules and for Parliament to change the relevant tax law to prevent more people being unfairly disadvantaged.
Jon Greer, head of retirement policy at Quilter, said: “Change is well overdue. For three years now, industry has been repeatedly highlighting the issues that pension savers are coming up against as a result of the unnecessary points of friction within the DWP’s regulations. A growing number of people have been negatively impacted as their pension transfers have been needlessly halted for what is often no real reason, yet nothing has been done to help them.
“The DWP has claimed it is working to consider whether the rules could be improved, but with no indication of a timeline, it seems more and more people will face undue disruption. As a matter of urgency, the DWP must act to resolve the current divergence between policy intention and the practical application of the law when it comes to the overseas investments wording to provide clarity on the distinction between those investments that present a scam risk versus those that do not.
“In addition, the data that the Money and Pensions Service has captured demonstrates a clear lack of clarity provided to customers as to why an amber flag was raised on their pension transfer. Pension schemes must be required to give accurate and clear information to customers prior to these sessions, and the DWP should consider making it an explicit legislative requirement to resolve the issue.
“The potential that thousands of people have been saved from scams is the silver lining. However, those who are less fortunate and have been the victim of pension or investment fraud could face not only the damages of the fraud itself, but also punitive tax. HMRC and Parliament must enact change to ensure those who have been the victim of fraud do not face further devastating losses simply due to the way in which tax laws are applied.
“Ultimately, pension savers have suffered needless delays for three years, and it is time the DWP put a stop to it.”
