Defined Benefit  

Scam warnings on DB transfers reach 5-month high

Scam warnings on DB transfers reach 5-month high

The number of scam warnings on defined benefit transfers has continued to climb and has now reached a five-month high, XPS Pensions said.

The XPS Red Flag Index identified at least one warning sign of a potential scam or the potential for poor member outcomes in 61 per cent of transfers processed in May, up from 59 per cent in April.

Transfer activity also rose in May to a rate of 63 in every 10,000 members transferring per year, after it fell to the lowest level since September in April.

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There was also a small increase in the value of these transfers, as financial markets remained stable.

In May, the average value of transfers was £251,000, compared with £247,000 in April and £246,000 in March.

Helen Cavanagh, client lead, member engagement hub at XPS Pensions Group, said: “It is disappointing to see another increase in the red flag index, which points to a need for ongoing robust management from trustees to ensure they have protection for all transfers. 

“The new legislation proposed by the DWP is a helpful first step and will empower trustees to stop transfers if they suspect there’s a scam. However, even with the new impending legislation, trustees need to ensure they have robust scam protection processes for all transfers.”

Last week (June 9), the government closed its consultation on plans 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.

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 data 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.

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