New rules to prevent scams are expected to hit more than 160,000 pension transfers and will cost the industry and employers about £1m in their first year.
In an impact assessment of the Pension Schemes Bill, published yesterday, the Department for Work and Pensions set out the potential effect for providers, employers and members of regulations that will define the circumstances under which a pension scheme member will have the right to transfer their savings to another scheme.
The proposed rules apply to both defined contribution and defined benefit pension schemes and require trustees to check the receiving scheme is regulated by the Financial Conduct Authority, or has an active employment link with the individual, or is an authorised master trust.
According to the DWP, these regulations will impact 100,000 DB transfers and 60,000 transfers from DC trusts, but it is not known how many DC to DC transfers will be affected.
Out of these 160,000 transfers, 104,385 are expected to transfer to a master trust and the remaining 55,616 will be subject to the earnings and employer link checks under the new rules.
According to government data, in 2017-18 there were 4,700 transfers to Qualifying Recognised Overseas Pension Schemes with 2,350 expected to have come from an occupational pension scheme.
Out of these 2,350 Qrops transfers the DWP has estimated half will be the result of an employee moving to a new employer overseas and therefore, under the new rules, would be subject to the employment link as opposed to the Qrops-specific regulation.
In total the regulations are expected to cost more than £1m in the first year, which is comprised of £463,000 in familiarisation costs, £674,000 in administration costs (£435,000 to providers and £239,000 to employers).
Costs in each subsequent year will be £543,000, made up of administration costs.
However, if the number of transfers being carried out each year increases then the administration costs are also expected to grow.
The new rules for transfers are expected to prevent an outcome such as the one seen in the Royal London case from 2016, where a High Court judge ruled in favour of a clients’ right to transfer her pension into a new scheme despite her existing provider’s concerns about it.
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