New UK regulations aimed at reducing pension scams will force trustees or scheme managers of occupational and personal pension schemes to meet at least one of four conditions before they act on a pension transfer request from a scheme member, the UK's Department for Work and Pensions (DWP) set out today (14 May) in a consultation which will run until 9 June 2021.
But in quick reaction, Andy Bell, chief executive of AJ Bell, argued the consultation was ill-conceived: "Tackling financial fraud is one of the most significant challenges facing the industry today and we have campaigned tirelessly for vital reforms, including the pensions cold-calling ban.
"However, it is crucial in designing any protections for savers that the cure is not worse than the disease.
"Unfortunately, that is a real risk with the DWP's proposed reforms, which could require savers to satisfactorily answer a set of questions before they are allowed to transfer their pension unless they are moving their fund to a ‘safe destination' scheme.
"Classifying insured pension schemes as a safe destination, whilst excluding platform pensions is arbitrary. The thinking that all insured schemes are inherently safe shows the Government has forgotten the Equitable Life scandal.
Bell added: "Whether or not the ‘red' and ‘amber' flag questions are asked will be at the discretion of the provider the person is transferring away from. Whilst it is positive that firms are encouraged to use existing intelligence to decide whether to ask these questions, some firms will undoubtedly take a risk averse approach and ask them on all non-safe destination transfers.
"If providers take a blanket approach and ask these questions of all transfers to schemes not on the safe destination list, pension transfers could be pushed back into the dark ages.
"That would be ludicrous, could cause serious consumer detriment and needs to be urgently rethought."
While Andrew Tully, technical director, Canada Life said: "Pension scams are a scourge of society and it has been well documented how big the problem is. Behind the numbers are very personal stories and every one of them is saddening to hear about.
"So it makes sense to introduce further measures to protect people from scams. However, these ideas focus on the under 55 age group pre pension freedoms. There are only a few scams which affect transfers before age 55, as most people know there are only very limited circumstances where you can access your money legally pre 55."
He added: "Scammers instead target customers who are age 55 plus when people can legitimately access their funds and these measures will unfortunately do nothing to prevent that. The old adage still applies, buyer beware and if it looks too good to be true, it inevitably is. Simply walk away, delete the email or hang up if you are contacted out of the blue.
"We also have to be careful that any measures introduced don't cause undue delays in people being able to transfer their pension benefits from one scheme to another. The industry has worked hard to get transfer turnaround times down and it wouldn't be good if any new measures caused that to go into reverse."
The four conditions in the consultation are:
- To confirm the transfer is to one of a number of types of receiving scheme which present a low scams risk, by virtue of the requirements of those schemes; if that is the case the transfer proceeds without any further checks or requirements for members to provide further evidence or information to the trustee or scheme manager. This includes public sector schemes, master trusts and personal pensions run by insurers.
- If the transfer is not to one of those listed types of scheme, members can exercise their statutory right to transfer on condition that certain prescribed evidence is provided. Trustees need to confirm the member has demonstrated an employment link between themselves and the occupational pension scheme they wish to transfer to. If they wish to transfer to a QROPS and they can't demonstrate an employment link, they will be required to demonstrate residency in the same financial jurisdiction as that of the scheme to which they wish to transfer. Where these employment and residency conditions are met, the transfer proceeds.
- If neither I nor II apply, then the trustees or scheme managers must decide if any of the prescribed circumstances that would prevent a transfer are present. We refer to these as ‘red flags'. Should any of these be present, the transfer may not proceed. If the red flags are not present, the trustees or scheme managers must decide whether any of the circumstances where the member must be referred to specified scams guidance apply. If these are present, the transfer may only proceed once the member provides evidence of having taken the guidance. We refer to these as ‘amber flags'. Where they decide the flags are not present, the transfer proceeds.
- The trustees or scheme managers are not required to seek information from the member to identify whether the red or amber flags are present but have the power to do so if needed. They 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.