The UK’s Department for Work and Pensions (DWP) has published a consultation on regulations around pension transfers in an effort to reduce scams.
The DWP wants trustees or scheme managers of occupational and personal pension schemes to ensure that at least one of four conditions is met before they act on a pension transfer request from a member of their scheme.
The consultation is open to anyone who has an interest in pension transfers, in particular scheme trustees and managers, and scheme members and is open until 10 June 2021.
The four conditions proposed in the consultation are:
Step 1: Is the member moving to a ‘safe destination’ scheme? These schemes will include master trusts, collective defined contribution (CDC) schemes, funded public sector pension schemes and pension schemes operated by insurance companies.
If Yes, the transfer can go ahead. If No, the provider must move to Step 2.
Step 2: Can the individual demonstrate an ‘employment link’ to an occupational pension scheme receiving the transfer, or a ‘residence link’ where they are moving to an overseas pension scheme called a Qrops?
If Yes, the transfer can go ahead. If No, the provider must move to Step 3.
Step 3: The pension scheme the person is transferring from must assess whether to contact the member and ask them a list of set questions to identify whether any ‘red’ or ‘amber’ flags are associated with the transfer.
This assessment will be based on the pension provider’s knowledge of the receiving scheme and the perceived risk of there being a scam involved. Only once the member has responded to these questions in a satisfactory manner can the transfer go ahead.
Step 4: If a red flag is highlighted by the answers and/or by wider due diligence, the transfer will not be allowed to proceed.
If an amber flag is highlighted by the answers or due diligence then the pension scheme has to tell the individual to make an appointment to speak with Pension Wise, and obtain evidence that they have spoken to the guidance service, before the transfer can go ahead. If the individual refuses to speak with Pension Wise, they cannot make the transfer.
The process is not mandatory, however – providers will have to decide whether or not to follow it.
Guy Opperman, MP and parliamentary under-secretary of state at the DWP, said: “Pension scams are a menace. They cost people their life savings, and have a devastating financial and emotional impact on their victims.
“The government is fully committed to working with regulators, industry and enforcement agencies to protect people from pension scams through transfers from one pension scheme to another and make it as hard as possible for criminals to carry out their malevolent intentions.
“That is why I intend to take forward the implementation of the measures introduced in Section 125 of the Pension Schemes Act 2021, which received broad cross-party support. This consultation outlines our proposals which we intend to bring forward at the earliest opportunity.
“These new measures will enable trustees to prevent a transfer request if they see evidence of ‘red flags’. They will also, for other potentially fraudulent transfers, prevent people’s hard-earned savings being moved to suspect schemes without them receiving expert guidance.
“These conditions can relate to both the destination of the transfer or where the pension saver is unclear about how their money will be invested or how much they will be charged for their savings to be managed.
“I have listened to industry about the important part trustees play in preventing scams and believe the conditions on transfers set out in the draft regulations attached to this consultation put them in the driving seat when it comes to pension transfers.”
But the pensions industry has responded negatively to the proposals.
Andy Bell, chief executive of AJ Bell, said: “Tackling financial fraud is one of the most significant challenges facing the industry today and we have campaigned tirelessly for vital reforms, including the pensions cold-calling ban. However, it is crucial in designing any protections for savers that the cure is not worse than the disease.
“Unfortunately, that is a real risk with the DWP’s proposed reforms, which could require savers to satisfactorily answer a set of questions before they are allowed to transfer their pension unless they are moving their fund to a ‘safe destination’ scheme.
“Whether or not the ‘red’ and ‘amber’ flag questions are asked will be at the discretion of the provider the person is transferring away from. Whilst it is positive that firms are encouraged to use existing intelligence to decide whether to ask these questions, some firms will undoubtedly take a risk averse approach and ask them on all non-safe destination transfers.
“If providers take a blanket approach and ask these questions of all transfers to schemes not on the safe destination list, pension transfers could be pushed back into the dark ages. That would be ludicrous, could cause serious consumer detriment and needs to be urgently rethought.”
Andrew Tully, technical director, Canada Life, added:“We also have to be careful that any measures introduced don’t cause undue delays in people being able to transfer their pension benefits from one scheme to another. The industry has worked hard to get transfer turnaround times down and it wouldn’t be good if any new measures caused that to go into reverse.”