Pension transfer checks to involve member payslips

Out-Law News | 21 Jan 2020 | 2:28 pm | 2 min. read

Pension providers in the UK will be required to review the payslips and bank statements of members seeking to transfer their money to other schemes under new regulations that are planned to combat fraud.

Details of the requirements pension providers will have to fulfil were recently made public by the Department of Work & Pensions (DWP).

The requirements concern regulations that are envisaged under the proposed new Pension Schemes Bill.

Fairhead Ben

Ben Fairhead

Partner

This impact assessment is the first time we have seen the DWP put forward its initial view on what the genuine employment link should look like

The Bill provides the government with the power to introduce new regulations setting out the circumstances under which a pension scheme member will have the right to transfer their pension savings to another scheme; something that the government has acknowledged is necessary to prevent pension savers from being scammed. Action Fraud figures suggest that the average loss of pension benefits to scheme members because of scams is £91,000.

Under the proposed reforms, the statutory right to transfer pension savings will be limited to certain types of pension schemes. This includes those operated by Financial Conduct Authority (FCA) authorised companies, authorised master trust schemes, and where a genuine employment link to a receiving occupational pension scheme can be evidenced.

DWP has now published an updated impact assessment for the new Bill in which it has provided some clarification on the actions pension providers could be required to verify the 'employment link' in relevant cases under the new regulations.

"Exact detail will be confirmed at later legislative stages, but provisionally we envisage members will be required to provide payslips and bank statements over a three month period, in which the level of earnings in each of those months must be at least equal to the National Insurance lower earnings limit," DWP said.

"The pension provider of the ceding scheme will need to obtain the schedule of contributions or payment schedule (showing both employer and member contributions) from the employer as well as a letter in which the employer states they are participating in the receiving scheme and employ the member," it said.

Pensions expert Ben Fairhead of Pinsent Masons, the law firm behind Out-Law, said: "This impact assessment is the first time we have seen the DWP put forward its initial view on what the genuine employment link should look like. The previous consultation left this up in the air. It is a provisional view and will be subject to consultation but shows the direction of travel."

"No doubt there will be debate around whether the predicted time and cost assessment is reasonable for those having to collate employment information. It really should simplify the current position on transfers into suspicious occupational pension schemes overall, though. This is welcome, but most trustees and providers I talk to see these types of transfers as much less commonplace than they were a few years ago," he said.

According to the new impact assessment, the total number of pension transfers out of occupational schemes that are estimated to currently take place each year which would be subject to the reforms is 160,000. More than 74,000 of those transfers are thought to trigger the employment link criteria.

Pension providers and employers are likely to incur total costs of around £1 million between them in the first year of the reforms, though the ongoing total costs would fall in subsequent years to around £543,000, according to the impact assessment.

According to DWP, the reforms would deliver £23m of benefits to pension scheme members by averting scams. However, Fairhead, who specialises in the resolution of pensions disputes, said the proposals do not appear to address all routes fraudsters have been pursuing to scam savers planning pension transfers.

"What is disappointing is that this impact assessment confirms it is not envisaged that the regulations will offer any scope for challenging transfers into suspicious personal pension schemes, which does nothing to address more current concerns within the industry about what have been termed 'international SIPPs'," Fairhead said. "There is a danger, as ever, that the law is a few steps behind the fraudsters."

"In addition to the genuine employment link, introducing a wider discretion so trustees can consider declining a transfer request where there are reasonable suspicions the member is likely to be scammed would potentially do more to reduce the scourge of pension scams," he said.