The Department for Work and Pension (DWP) has found 94% of completed pension transfers went through with no issues and no flags.
In May 2021, the DWP launched a public consultation – Pension Scams: Empowering Trustees and Protecting Members following the introduction of the Pension Schemes Act 2021, which gave pension scheme administrators the ability to stop a transfer if they believe there is a high risk it is a scam.
The consultation aimed at identifying issues with the 2021 Act.
The DWP found, during its 18-month review between December 2021 and February 2023, that only in 1% of completed transfers were red or amber flags raised.
A transfer is complete when the transfer request is closed – meaning the transfer has either gone ahead or it has not gone ahead and will not go ahead. Transfers that are still being processed and the outcome is yet to be determined were not included in the review.
In the 290,000 transfers the DWP looked at, 2,400 transfers were given an amber flag. The most common reason was the inclusion of overseas investments in the receiving scheme.
In total 300 red flags were raised. In almost half the cases (47%) this was because the customer had failed to provide the right information. And in a further quarter (26%) because the customer hadn’t provided evidence that they had attended a MoneyHelper appointment.
The DWP said it will continue to work with the industry to resolve areas where transfer requests are being delayed or blocked, especially where an amber flag is raised because the scheme includes overseas investment. And where a red flag is raised because the scheme offers an incentive.
Over the last 18 months, the waiting time for a MoneyHelper safeguarding appointment has gone up from 2 weeks to 6 weeks.
The 2021 act brought two conditions into the pension transfer process.
The first condition is satisfied where the trustees or managers of the transferring scheme satisfy themselves that the receiving scheme is one of the following:
- Public Service Pension Scheme;
- Master Trust; or
- Collective Money Purchase.
The second condition applies to all statutory transfers that are not covered by the first condition and places a requirement on all schemes to decide whether red and amber flags may be present.
Although a very low proportion of reported transfers were completed with a red or amber flag present, the DWP said it “must be noted that the proportional breakdown on an aggregate level isn’t representative of what every provider or administrator is experiencing”.
“Some providers are processing close to 99% of their transfers through condition 1 or condition 2 where no flags are present whilst others are processing less than 20% this way. The aggregate data is likely to be skewed towards larger providers and administrators,” it added.
Transfers requiring further information or consideration
The DWP said that some data returns were unable to distinguish between condition 1 and condition 2 transfers where no flags are present. Therefore, to estimate the proportion of transfers that require condition 2 due diligence checks, returns without this information are not included in this analysis.
Of these 130,000 transfers that distinguish between condition 1 and 2:
- 83% were completed under condition 2 where no flags were present;
- 12% were completed as a contractual or discretionary transfer;
- 3% were completed as a condition 1 transfer; and
- 2% were completed where an amber or red flag was present.
Therefore, the proportion of transfers that currently receive condition 2 due diligence checks is approximately 85%.
Amber and red flags
From the 290,000 transfers, 2,400 transfers were given at least one amber flag. 96% of these transfers did proceed to transfer, while 4% did not.
The 3 most common amber flags were:
- ‘Overseas investments are included in the scheme’ (57%);
- ‘High risk or unregulated investments included in receiving scheme’ (15%); and
- ‘The scheme charges are unclear or high’ (10%).
The transfers with amber flags that were less likely to proceed were:
- Incomplete evidence/information provided (12%);
- The scheme charges are unclear or high (10%); and
- Evidence not genuine/not provided directly (7%).
DWP have also been working closely with the Money and Pension Service to collect further insights from pension safeguarding appointments. Data shows that between December 2021 and February 2023, there were over 12,600 pension safeguarding appointments.
The most common flag types reported by customers were:
- Flag type is unknown to attendee (43%)
- ‘Overseas investments are included in the scheme’ (37%)
- ‘The scheme charges are unclear or high’ (10%)
- ‘High risk or unregulated investments included in receiving scheme’ (5%)
From the 290,000 completed transfers, 300 transfers were given at least one red flag.
The 3 most popular red flags were:
- ‘The member has failed to provide the required information’ (47%);
- ‘The member has not provided evidence of receiving MoneyHelper guidance’ (26%); and
- ‘Someone carried out a regulated activity without the right regulatory status’ (17%).
The DWP also received additional feedback during the quarterly forums with providers and in the data returns. Overall, pensions industry feedback suggests that the original policy intent of preventing or minimising the risk of someone transferring into a scam pension scheme remains appropriate and in general the regulations are the way to deliver that.
Feedback also suggests that there has not been a change in scam typology. However, some feedback has suggested that there are some areas of concern. This included:
- The overseas investment amber flag needs to be more clearly defined or removed. As it is structured it can mean that an amber flag needs to be raised, even when schemes have no concerns;
- The incentives flag is incorrectly blocking transfers due to the different interpretation of the flag by some providers;
- Transfers are taking longer due to the additional due diligence checks required and longer waiting times for MoneyHelper appointments;
- Several individuals are required to attend multiple safeguarding appointments, even if they are consolidating because individual schemes are identifying flags; and
- Evidence requirements for an employment link can be excessive on pension members.
In conclusion of the review, the DWP said: “Whilst the original policy intent remains appropriate, feedback from the pensions industry suggests the incentives and overseas investments flags are the main concerns with the application of the regulations.
“DWP will therefore conduct further work with the pensions industry and the Pensions Regulator to consider if changes could be implemented to the regulations to improve the pension transfer experience, without undermining the policy intent.”
‘Strike right balance’
Rachel Vahey, head of policy development at AJ Bell, said: “One pension scam is still one too many, and these DWP regulations are an important step in stopping bogus pension transfers. But the DWP has to strike the right balance between protecting customers and making sure the majority of pension transfers go through without unfair delays.
“The headline that flags are raised in only 1% of cases muddies the truth that the regulations have introduced some unnecessary delays and barriers to a number of perfectly legitimate pension transfers.
“Pension schemes are taking vastly different approaches to enforcing the regulations, with some much more likely to raise flags because they’re following the rules to the letter, even when it is clear the transfer is a valid one. The industry needs more clarity and consistency in order to iron-out some of these issues and avoid tangling pension savers up in red tape.
“Most pension schemes include some type of overseas investments, so it’s illogical to have this as a separate reason to raise an amber flag. Reviewing this condition could get rid of these amber flags for a significant number of pension customers. Likewise, we need a clearer definition of what an incentive is, so all schemes are on the same page, and no scheme raises a red flag and stops a transfer unnecessarily.
“Wrapped-up in the review are a couple of intriguing statistics. Data from the industry shows that over a million pension policies were moved in 2022. It reveals the vast scale of the pension consolidation market in the UK, as savers shop around for lower charges, better service and more investment choice. For anyone that isn’t on top of their pension paperwork, this is a good reminder that many people have multiple pension pots and could benefit from bringing them together in a modern pension account that is easy to manage and doesn’t cost them a fortune.
“Similarly, the report highlighted a growing waiting list for safeguarding calls with the government’s free Moneyhelper service. Having to wait for six weeks to get a MoneyHelper safeguarding appointment is simply too long. Pension customers could be losing out on lower charges and investment opportunities, not to mention the frustration of having to wait so long just to move your own money.
“Although guidance can be helpful in highlighting issues, pension customers that have taken the time to review their pensions and select a new provider want the transfer process to run quickly and smoothly. Delays only frustrate and anger customers, and in some cases that could mean they’re actually less likely to make a calm and level-headed decision.
“The report card from this review reads ‘working OK but could do better’. It’s up to the DWP now to work with the industry to put right these problems.”