- DWP finds 94% of transfers went through with no further action, but pension schemes were taking vastly different approaches to applying the regulations.
- The most common reason an amber flag was raised (57%) was where overseas investment was offered by the scheme. The most common reason a transfer is completely stopped was where the customer hadn’t provided the right information.
- Where required to get MoneyHelper safeguarding guidance, pension customers are being forced to wait for six weeks for an appointment.
- Around 1 million transfers were completed by Origo in 2022
Rachel Vahey, head of policy development at AJ Bell, comments on The Department for Work and Pensions (DWP) 18-month review published today of its ‘pension scam transfer regulations’. These were introduced in November 2021, giving pension scheme administrators the ability to stop a transfer if they believe there is a high risk it is a scam.
“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.”
Raising the flag
The regulations work by allowing scheme administrators to raise a ‘flag’ if the pension transfer meets any of a number of set conditions.
- Amber flags: Raised when the scheme administrator believes there may be a risk, but equally the circumstances could be legitimate. If an administrator raises an amber flag, then the customer must attend a pension safeguarding appointment with MoneyHelper. Once they have done this they can then go ahead with the transfer if they want to.
- Red flags: If a red flag is raised, then this is a firm stop to the transfer, and it cannot go ahead on a statutory basis. However, confusingly, some schemes may allow the transfer to go ahead on a discretionary basis, meaning the customer has to take on the risk of accepting the transfer.
What the DWP found out
The DWP discovered 94% of transfers went through with no issues and no flags. Only in 1% of transfers were red or amber flags raised. (The remaining 5% of transfers were completed outside the regulations on a discretionary basis.)
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.
Over the last 18 months the waiting time for a MoneyHelper safeguarding appointment has gone up from 2 weeks to 6 weeks.
What happens next?
The DWP 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.
Volume of transfers
Data collected by the DWP from Origo shows that the total number of transfers they completed in 2022 increased from their original estimate of 750,000 to around 1 million.
This increase in transfers is likely due to more people choosing to consolidate their different defined contribution pension pots in one scheme.
