The government wants to allow pension providers to block suspicious transfers with the help of a warning flag system for schemes.
In a consultation out today (May 14), the government said it was looking to enable pension trustees to prevent transfers if there is a risk the pension holder is being scammed.
The consultation, which comes after the Pension Schemes Act 2021 was accepted into law in January this year, is asking for feedback on proposals to give trustees more power over whether a pension holder can transfer money out of the pension.
The minister for pensions and financial inclusion, Guy Opperman MP, said he had listened to the industry about the importance of preventing scams.
“[I]believe the conditions on transfers set out in the draft regulations attached to this consultation put them in the driving seat when it comes to pension transfers.
“These measures empower trustees and managers to act and build on the ban on pensions cold calling and tougher rules to stop scammers opening fraudulent pension schemes government has already introduced.”
It comes after Royal London lost a court case in 2016, when the High Court decided the provider had been wrong to refuse a pension transfer over concerns about the status of the receiving scheme.
Royal London's decision had previously been backed by the Pension Ombudsman, and lawyers at the time warned the decision could have far reaching consequences in the fight against scams.
Today's proposals included a system of red and amber flags, warning trustees when pension holders wish to transfer their funds to another scheme which does not fulfil certain criteria, for example an employment link between the holder and the occupational scheme they wish to transfer to.
Phil Brown, director of policy at B&CE, provider of The People’s Pension, welcomed the consultation and said the move would “give the industry greater powers to tackle pension fraud, which is the cruellest of all financial crimes.
“Legislation on this issue was one of the steps we recommended in the research with the Police Foundation which we published last autumn, with its findings discussed at a subsequent parliamentary inquiry into pension fraud.”
Ian Browne, pensions expert at Quilter added that these powers would go some way to keep pension savers’ earnings safe.
“The online world is teeming with dubious and downright fraudulent financial propositions, and the ban on pension cold calling has arguably just meant that fraudsters now target pension savers via email or on social media.
"But now if someone is encouraged to transfer their pension after unsolicited contact anywhere, including social media, this will be a ‘red flag’ and schemes may be able to block the transfer."
But he warned: "The future regulations will have to strike a delicate balance between maintaining an efficient and quick transfer market, in which the majority of ‘safe’ transfers aren’t effected, while limiting the scam risk across all schemes.