- New proposals from the Department for Work and Pensions (DWP) today promise to shift pension scam rules and reduce the number of unnecessary transfer delays (Protecting Pension Savers – Proposals to Amend the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 | GOV.UK)
- This welcome direction of travel follows a recent consultation from the FCA that threatens to have the opposite effect of creating additional friction and delays for non-advised pension transfers
- The original regulations took effect on 30 November 2021 and allow scheme trustees and administrators to block or investigate pension transfers when they have identified a ‘red’ or ‘amber’ flag
- The proposed changes remove the requirement for trustees to raise an ‘amber flag’ if the receiving scheme includes any overseas investments and change the definition of the ‘first condition’ to include ‘any reputable pension scheme’
- DWP is also tightening up controls to stop transfers to SSASs where there are doubts over the employment link between the member and the business owning the SSAS
Rachel Vahey, head of public policy at AJ Bell, comments:
“It’s right that trustees and scheme administrators take steps to protect people from pension scams, but in too many cases that caution has become a barrier to legitimate transfers.
“Savers are being left stuck with unnecessary delays, despite simply trying to move their pension in line with their wishes. It’s therefore a major step forward that the government has recognised the scale of the problem and is now acting to help unblock these transfers.
“Rewriting these regulations to include reputable SIPPs within the first condition and to remove the overseas investment amber flag will mean more transfers can progress smoothly and quickly, without getting snagged on the transfer delays and excessive bureaucracy currently being invoked by some pension schemes. This will help members take control of their pensions, achieve better outcomes, and create greater trust in the pension industry.
“Although the industry has been waiting for these proposals for a long time, they are doubly welcome as they represent a completely different direction of travel than that taken by recent FCA proposed changes to transfers which threaten to add significant delays to non-advised transfers. The FCA should now draw on the rationale behind these new proposals in its approach to non-advised transfers in order to meaningfully minimise delays for pension savers.
“However, DWP is also tightening up controls on transfers to Small Self-Administered Schemes (SSASs). In future, trustees and scheme administrators can raise a red flag and stop the transfer altogether if they have concerns that there is not a strong employment link between the member and the business that set up the SSAS.”
The anti-scam regulations
The Occupational and Personal Pension Schemes Conditions for Transfers Regulations 2021 took effect on 30 November 2021. They aimed to cut down on people being scammed by transferring their pension to a fraudulent or high-risk arrangement scheme.
Pension scheme members have a statutory right to transfer their pension to another scheme. These regulations remove this statutory right where the trustees or administrators suspect that the pension saver is being scammed, effectively stopping or delaying the transfer.
The regulations created two broad ‘conditions’ for transfers:
- First Condition – transfers to some schemes can go straight ahead without any other checks. These are public sector pension schemes, master trusts and authorised CDC schemes.
- Second Condition – for other transfers, trustees have to assess whether any ‘red flags’ or ‘amber flags’ are present.
The DWP is proposing rewriting the first condition to include ‘any reputable pension scheme’, which means transfers to FCA-regulated schemes such as SIPPs should in future be able to go ahead without any other checks.
What are red and amber flags?
Where red flags are raised, the transfer cannot go ahead on a statutory basis. However, confusingly some schemes may allow the transfer to go ahead on a discretionary basis, meaning the ceding scheme has to take on more risk when making the transfer. These red flags currently include:
- Being given an ‘incentive’ to transfer
- Being pressured to transfer
- Unsolicited contact encouraging the transfer
- Unregulated advice
- Failure by the member to provide required information
Where amber flags are raised, the pension scheme member has to attend a pensions safeguarding appointment with MoneyHelper before the transfer can continue. These currently include:
- Unclear or high fees
- Overseas investments
- High risk or unregulated investments
- Investments that are unclear, complex or unorthodox
So – what’s going wrong?
The guidance published by The Pensions Regulator (TPR) says trustees may want to keep a record of personal pension schemes they have deemed to be low risk following due diligence (sometimes referred to as a ‘clean list’). Transfers can proceed on a discretionary basis without checking individual transfer cases for red or amber flags.
However, currently some trustees are raising red and amber flags, effectively putting a block on transfers, even when the transfer is going to a reputable regulated provider and there’s no sign of fraud or scams.
This happens because transferring to a personal pension scheme, such as a SIPP, automatically fails the first required test, and may not meet the second test either – even if there’s no real risk of a scam. That’s usually because the rules are currently written too broadly, meaning many pension funds can get flagged just for having some overseas investments or offering promotional deals.
Even if the transfer isn’t completely stopped, and the member has to attend a guidance session with MoneyHelper, they may have to wait for weeks to get a free appointment time, causing a block or delay on the transfer.
Rewriting these regulations to include FCA-authorised personal pension schemes such as SIPPs within the first condition and to remove the overseas investment amber flag will mean more transfers can progress smoothly and quickly, without getting caught up on the transfer delays and bureaucracy currently being invoked by some pension schemes.
This will help members manage their pensions, improve outcomes, and build trust in the pension industry.
