Stephen Timms, chairman of the Work and Pensions committee, has warned transfer rules are not working and must be changed if the industry wants to put a stop to pension scams.
At the second reading of the Pension Schemes Bill yesterday (October 7), Mr Timms told the House of Commons saver should not be entitled to their right of transfer in cases where the receiving scheme or destination is listed on the Financial Conduct Authority’s warning list.
He pushed for the bill to allow trustees to refuse to make a transfer in cases where red flags are raised and a scam is suspected.
Under current rules, trustees have a legal duty to carry out a transfer of a saver's cash equivalent transfer value within a six-month deadline and if they refuse they could be at risk of legal action.
Trustees were able to halt transfer requests to some degree in the past but in 2016 the case Hughes v Royal London put a stop to this.
Royal London was successfully taken to court by a scheme member after it identified and blocked a suspicious transfer request.
Lawyers at the time warned the High Court ruling had “hamstrung” pension providers who blocked transfers if they thought the receiving scheme looked suspicious.
Mr Timms argued this had to be changed so that providers and trustees could put a stop to scams without the fear of being taken to court.
He tabled an amendment to the Pension Schemes Bill for the statutory right to transfer to be removed where a scam is suspected.
He said: “If the trustees of a scheme know that a particular transfer is going to a firm that is on the warning list, they should surely not have a legal obligation, as they do at the moment, and will still have under the bill, to hand the money over to crooks if the saver has taken advice but still, despite that advice, wants to go ahead.
“If the receiving firm is above board, it must show that to the FCA and get itself off the warning list.”
This proposed rule change has gathered support from other MPs as well as providers and other pension industry groups.
Pensions Minister Guy Opperman said he was “keen” to ensure this change and address the issues raised by Mr Timms.
Meanwhile, The Pensions Management Institute, Association of British Insurers and Pension Scams Industry Group have also voiced concerns over current rules.
The Pensions Regulator has said it would like the power to allow trustees to delay any suspicious transfers.
The Pension Schemes Bill, which also includes regulation around the pensions dashboard and collective defined contribution schemes, will now face the committee stage after it cleared the second reading without a vote.
It will then enter the report stage and third reading in the Commons before being returned to the House of Lords for a final consideration.