New restrictions that would limit the ability of individuals to transfer their UK pensions are among the key measures contained in a major and wide-ranging consultation document, published today by the UK’s Department for Works & Pensions and the Treasury.
A proposal to ban all cold-calling in relation to the selling of pension plans is also included in the document, something UK government officials have already said was in the works. It includes provisions that would permit the authorities to impose civil sanctions on companies found to have violated the ban, “including the power to issue fines of up to £500,000”.
The consultation comes so months after the UK introduced new legislation that was designed to make it easier for people to access their pension pots from the age of 55. However, critics have said that the new rules have also enabled scammers to too easily talk naiive pensioners out of their pensions, resulting in many of them losing their entire retirement savings in fraudulent and poor quality investments.
Transfer limits ‘to protect savings’
With respect to pension transfers, the consultation, which runs until Monday, 13 February, notes that although the government “believes it is right that members of pension schemes should continue to have the right to transfer”, it may be necessary to limit that right in certain circumstances “in order to protect individuals’ savings”.
As a result, the proposal is that a “a statutory right to a transfer” would exist only where “the receiving scheme is a personal pension scheme operated by an FCA [Financial Conduct Authority]-authorised firm or entity; [where] a genuine employment link to the receiving occupational pension scheme could be demonstrated, with evidence of regular earnings from that employment and confirmation that the employer has agreed to participate in the receiving scheme; or, [where] the receiving occupational pension scheme was an authorised master trust”.
In addition, the statutory right to transfer to a personal pension scheme, including a group personal pension or self-invested personal pension (SIPP) – ie, an FCA regulated firm – from an occupational pension scheme or other personal pension scheme governed by certain clauses in the Pension Schemes Act 1993 “would be retained, and would reflect any new restrictions”, the consultation document adds.
Under the proposals, it will still be possible to transfer from an occupational pension scheme or personal pension scheme to a different occupational pension or personal pension scheme, subject to the new restrictions.
Although the “statutory right to transfer” section of the consultation doesn’t mention qualifying recognised overseas pension schemes (QROPS) or recognised overseas pension schemes (ROPS), industry observers said the restrictions, if they were to become law, would inevitably hit the overseas pension transfer industry hard. Said one financial advisory executive: “[If these proposed restrictions were to take effect], it [would] allow trustees to stop transfers to QROPS that they do not like the look of.”
The consultation document published today is the one UK chancellor Philip Hammond said was pending, when, ahead of last week’s Autumn Statement, he revealed that a ban on the use of cold-calling to sell pensions was imminent, and that he would mention this in his Autumn Statement, which he did.
Today’s consultation document states that the purpose of the ban is to catch “various types of pension scams” that make use of cold-calling, including those that offer “free pension reviews” and “misleading offers of high return pension funds”.
Also banned would be cold-calling that offered inducements to hold certain investments within a pensions tax wrapper, ” including overseas investments”; promotions of retirement income products such as drawdown and annuity products; inducements to release pension funds early; inducements to release funds from a pension, and transfer them into a bank account, and similar sorts of enticements.
Says the consultation: “The proposed ban will send a clear message to consumers that no legitimate firm will ever cold call them regarding their pension, encouraging consumers to put the phone down on cold callers immediately.
“This will cut off the main mechanism used to persuade people that they are offering legitimate pension investments and services, and reduce the number of consumer requests to transfer to illegitimate schemes.”
To see the consultation document on the UK Government’s website, click here.
Responses should be sent to: [email protected]