Out-Law News | 17 May 2021 | 1:13 pm | 2 min. read
The UK government has confirmed plans to require pension trustees and scheme managers to rubber-stamp pension transfers as part of its efforts to crack down on pension scams.
Under the proposals, pension schemes will be divided into four categories based on the risk of a scam. For the lowest risk category, which includes authorised master trusts and insurer schemes, the trustee will simply have to confirm the transfer is to one of these schemes, after which it can proceed without any further checks and balances.
For transfers to occupational pension schemes, trustees will need to confirm the member has demonstrated an employment link with the scheme before the transfer takes place.
Trustees wishing to transfer to a qualifying recognised overseas pension scheme (QROPS) will need to prove an employment link or demonstrate residency in the same financial jurisdiction as that of the scheme to which they wish to transfer.
All other schemes will be subject to a flag regime. Trustees or scheme managers will have to decide if any prescribed circumstances, or ‘red flags’ preventing a transfer are present; if they are, the transfer cannot proceed.
If there are no red flags, trustees need to decide whether any of the circumstances where the member must be referred to specified scams guidance, to be provided by the Money and Pensions Service, apply. If these ‘amber flags’ are present, the transfer may only proceed once the member provides evidence of having taken the guidance.
If there are no amber or red flags, the transfer can proceed.
Trustees may be able to decide that the red and amber flags are not present without the need for additional checks or activity to that which they already undertake as part of their current processes.
Red flags include situations where the trustee or scheme manager has a reasonable belief that a member has received financial advice from a firm or individual without the necessary regulatory permissions; has been contacted unsolicited; or has been offered incentives to transfers.
Members will have to show they have taken guidance over the transfer in amber flag circumstances including where there are high-risk or unregulated investments in the receiving scheme; where fees charged by the receiving scheme are unclear or high; if the receiving scheme includes overseas investments or has overseas advisers; and if there has been a high volume of transfers to a single receiving scheme or involving a single adviser or firm.
The Department of Work and Pensions has developed a set of standard questions for trustees and scheme managers to use to meet the requirement to gather information from the member.
Pension scams expert Ben Fairhead of Pinsent Masons, the law firm behind Out-Law, said: “If implemented, this has the potential to be the most effective legislative change made in the past decade in the fight against pension scams. It will finally give those responsible for requests to transfer schemes much greater scope to decline them when they have suspicions about the legitimacy of the intended destination scheme."
“There will be those who will have concerns that this will cause the transfer market to become bogged down or paralysed if multiple transfers are blocked or referred to the Money and Pensions Service for guidance. However, with a degree of common sense, legitimate transfers should not be unduly delayed – and a bit of delay is surely a price worth paying if it results in potentially millions of pounds being saved from the clutches of pension scammers,” Fairhead said.
In April 2021 the Pension Scams Industry Group (PSIG) estimated that around 40,000 savers had lost around £10bn to scams since 2015, based on an estimate of 5% of all pension transfers showing typical scam signs. Between January 2015 and December 2019, Action Fraud received around 3,000 reports of pension scams, but the government said many scams were not reported.
The proposed regulations are designed to deliver on provisions set out in section 125 of the Pensions Scheme Act 2021. The consultation closes on 10 June 2021.
19 Apr 2021
10 Nov 2020