ScamsNov 8 2021

Savers to lose pension transfer rights under new scam rules

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Savers to lose pension transfer rights under new scam rules

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."

Tom Selby, senior analyst at AJ Bell, said: “Whereas previously blocking a suspicious transfer came with the real risk of being sued, this legislation creates a specific legal framework within which members’ interests can be protected.

“Provided firms apply these rules sensibly and don’t delay matters by asking the risk questions on transfers where it is clear the risks are very low, they should add extra security for transferring members without impacting the vast majority of legitimate transfers.

Concerns remain

But some concerns remain. Jon Greer, head of retirement policy at Quilter, is concerned the FCA’s warning list does not play a part in a provider's decision on suspicious transfers. 

Greer said: “The regulations do not empower pension providers to raise a ‘red flag’ where they have a reasonable belief that customer has been contacted by an individual or organisation that is subject to a warning on the FCA’s warning list. 

“While the FCA’s warning list is by no means a comprehensive list of scammers, it is illogical to exclude it given it’s such an important tool in pension schemes' arsenal to detect and prevent fraudulent transfers.”

Meanwhile, Daniel Jacobson, senior consultant and the lead of LCP’s Pension Scams Group is worried about the short timescale providers have been given to put this system in place. 

“Although DWP has stated that they think that 95 per cent of transfers do not have scam risks, these new checks will still need to be applied to 100 per cent of transfer requests in order to identify that rogue 5 per cent,” Jacobson said.

“And whilst these regulations will help protect members, there is only a three-week period before they come into force. This is a small window of time for what will mean big changes in how trustees and administrators deal with scams."

But Margaret Snowdon, chairwoman of the Pension Scams Industry Group, said schemes that already carry out due diligence checks and maintain clean lists of transfers destinations should be well prepared for the new rules and the majority of transfers should proceed without delay.

“The purpose of the changes is to allow trustees to say no when faced with scam signs,” she said.

“PSIG is working on a revised version of its scams code, which we will publish later in the year, to give practical help on how to use the new rules.”

amy.austin@ft.com

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