Trustees will be able to pause or block pension transfers when there are signs of fraud from next month, under new rules unveiled today.
The Department for Work and Pensions said the measures, coming into force on November 30, will give pension trustees and scheme managers the power to halt a transfer, if they deem necessary, by raising a ‘red flag’.
In addition, they can raise an ‘amber flag’ if they suspect a potential scam, which will mean the member will have to provide evidence they have taken specific scam guidance from the Money and Pensions Service before they are allowed to transfer.
The rules effectively reverse a High Court decision from 2016, which ruled Royal London could not stop its client from transferring her pension despite concerns about the status of the receiving scheme and Donna-Marie Hughes’ right to transfer her pension into it.
Experts at the time warned the ruling would have far-reaching consequences, ultimately leading to a potential influx of money into suspicious schemes.
Today's rules cover transfers in and out of funded and unfunded public service pension schemes, defined benefit schemes, defined contribution schemes and collective money purchase schemes.
However, transfers to master trusts, collective defined contribution schemes and funded public sector schemes will be exempt from the rules as ‘safe destinations’.
In its original consultation earlier this year, DWP suggested schemes which are operated by an insurer that is registered by the Financial Conduct Authority and authorised by the Prudential Regulatory Authority should also be included in the exemptions.
But the industry raised concerns this could cause commercial harm to firms not falling within it, such as large-scale Self-Invested Personal Pension providers.
The DWP said by not including them the “playing field is levelled” for all FCA registered and authorised schemes and transfers to these schemes will still have to show an employment link between the member and receiving scheme.
The government stated: “The majority of those transfers will cause no concern to the transferring scheme, and where this is the case, those transfers will proceed with no due diligence additional to that currently carried out. But it will be for transferring schemes to make that judgment.”
The government will review the new regulations within 18 months to ensure they remain as “effective as possible in targeting the evolving methods used by scammers”.
Guy Opperman, pension minister, said: “We are tackling the scourge of pension scams in practical terms to safeguard pensioners’ hard-earned savings.
“These measures will provide better protection for savers.”
Industry gets on board
The pensions industry has welcomed the government’s rules, saying they should cause the number of scams to fall without creating unnecessary delays.
Renny Biggins, head of retirement at Tisa, said: “Whilst this cannot completely stop scams from occurring through the transfer process, it will see their numbers decline and general consumer awareness heightened.
“It is important to note that the process does allow for scheme discretion. Where previous due diligence has already identified a receiving scheme as being safe, there is no requirement placed on the ceding scheme to complete additional steps before proceeding to make the transfer."