Proposals to give trustees the power to halt pension transfers where a scam is suspected have gained support from advisers, despite some scepticism over the practicality of implementing them.
Keith Richards, chief executive officer of the Personal Finance Society, said this week's amendment to the Pension Schemes Bill, which seeks to remove people's statutory right to transfer where a scam is suspected, was a positive move.
But he warned it must not stop legitimate transfers from taking place.
He said: “When considering the case of defined benefit pension scams, it is important to remember that individuals are often manipulated by sophisticated scammers who take advantage of deep-seated behavioural biases.
“As a result, it is appropriate for trustees to exercise a duty of care when they can see an individual is about to become a victim of crime.
“That said, it is equally important that trustees engage with advice firms to ensure they are not standing in the way or legitimate regulated advice.”
Dominic James Murray, independent financial adviser at Cameron James, agreed the proposals would only work if they did not categorically stop all unusual transfers from going through.
He also said trustees will need to clearly define in what circumstances they will make use of the power.
Mr Murray said: “This proposal is very much contingent on what a ‘red flag’ is and how each scheme trustee defines it.
“Anything that will help stop pension scams is to be applauded, but it needs to make sure that it doesn't end up hindering prospective consumers from making pension transfers that are in their best interest.”
Besides, Mr Murray said he was not convinced it will put a stop to scams once and for all.
He said: “Scammers are very sophisticated these days, so I am not sure that it will have a major impact on their ability to operate, but I do think it is a step in the right direction, and anything that is done by the industry and regulators to ‘clean up’ the market and improve the quality of advice and outcomes for consumers is to be championed.”
Under current rules, trustees have a legal duty to carry out a transfer 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 Richards thought giving trustees the ability to intervene when they see very suspicious behaviour taking place would help to reduce the number of people being caught out by fraudsters.