Out-Law News | 01 Mar 2022 | 2:10 pm | 2 min. read
It comes after the Department for Work and Pensions (DWP) told the parliamentary joint committee on statutory instruments that officials had been notified of a potential problem involving too many pension transfers being given an ‘amber flag’.
New transfer rules introduced in November 2021 require the trustees of a transferring pension to find an amber flag – which pauses a transfer - if they decide that there are overseas investments included in the receiving scheme. The member involved in the flagged transfer must then prove that they have taken scam guidance from the Money and Pensions Service (MaPS) before the transfer can be authorised. Trustees are also required to block a transfer if they identify a ‘red flag’.
The joint committee previously warned that, since most schemes include overseas investments, the amber flag rules could result in a high number of pension savers being forced to take MaPS guidance before making low risk transfers. The DWP told the committee that the amber flag regulations were not intended to encompass low risk transfers and said it was actively engaging with industry representatives and considering amending the regulations.
But Ben Fairhead, pensions litigation expert at Pinsent Masons, warned that fixing the issue could take time. He said: “The solution might lie in making it clearer within the regulations that transfers to schemes on ‘green lists’ should be exempt from the more detailed red and amber flag regime. It is at least good to see a willingness now from the DWP to consider amendments to the regulations - although this is unlikely to be a quick fix.”
“In any case, it is welcome to see that this issue is on the committee’s radar and is recognised as a problem with the drafting of the regulations. Early indications suggest that MaPS has not been overwhelmed with referrals so far, and the pensions industry is doing its best to grapple with the amber flag issue - with many administrators, providers and trustees adopting a pragmatic approach to following regulator guidance,” Fairhead said.
He added: “But there is no guarantee that the situation won’t change. If faced with a complaint from a member who transferred a pension without a referral to MaPs having been made, the Pensions Ombudsman might feel constrained by the literal reading of the regulations, which clearly make no distinction between overseas investments that present a scam risk and those that do not. Ultimately it could be a good few years before we see a complaint being formally addressed in an ombudsman decision.”
“In the meantime, the disconnect between the law and policy intention is far from ideal. Those who are continuing to handle transfer requests, which might increase as the end of the financial year approaches, will need to continue balancing the risks and taking advice if concerned,” Fairhead said.
30 Nov 2021