Third of high risk DB transfers would pass new scam test

Third of high risk DB transfers would pass new scam test

One in three defined benefit transfers flagged as high risk would be allowed under new government proposals designed to reduce scams, a consultancy has warned.

XPS looked at data from its Scam Protection Service and found that of all the transfers flagged by the service since July 2018, one in three would have satisfied the ‘first condition’ of the Department for Work and Pensions’ proposed legislation.

The government is planning to give trustees the power to halt suspicious transfers and has proposed a system of red and amber flags for identifying transfers to schemes which do not fulfil certain criteria, for example an employment link between the holder and the occupational scheme they wish to transfer to.

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Under the proposals the first condition requires trustees to identify if the transfer is to a certain type of scheme allowed under the new rules.

This includes personal pensions authorised by the FCA, master trusts, public service pension schemes or collective money purchase schemes.

But XPS found out of the 462 transfers its service had identified as being at high risk of a scam, 37 per cent would meet the first condition and thus would not require any further checks.

Of the 1,143 transfers flagged as at some risk of a scam by XPS, 69 per cent would pass the government’s new rules, whereas of the 2,184 transfers at no risk, 64 per cent would pass.

Mark Barlow, partner at XPS Pensions Group, said: “The ability for trustees to block transfers in certain circumstances is a welcome step forward in the fight against pension scams. However, we are concerned that these conditions could suggest that certain transfers are 'scam free' when we know this not to be the case. 

“Evidence from our Scam Protection Service demonstrates how robust scam protection measures will continue to be vital in protecting member outcomes”.

Scam risk identified by XPS

Number of cases

Proportion that meet the First Condition (no further checks)

Flagged as a high risk of a scam



Flagged as at some risk of a scam



No scam red flags



Similar concerns have been raised across the pensions industry with LCP warning last week (June 10) that the rules could stop legitimate transfers while determined scammers could still get transfers past the line.

Daniel Jacobson, senior consultant at LCP said: “These new rules have been designed with the best of intentions, but we are concerned that they may not have the desired effect. 

“Some key concepts such as ‘high cost’ or ‘high risk’ are very subjective and trustees may not be well placed to make such judgments."

He said it was unclear how the measures would work in practice and that more guidance was needed to make sure the rules were applied consistently.

Dominic James Murray, chief executive officer and independent financial adviser at Cameron James, said advisers could also get caught up in providers' different interpretations of the rules.

He said: “It could easily be taken advantage of by UK ceding schemes, as further delay tactics on legitimate pension transfers. 

“For example, our clients complete thorough due diligence before even reaching out to us. As such, clients who are making well informed decisions with regulated advice could well get caught up with these new pension transfer powers to trustees.”