How will the new pension transfer restrictions work?

“For this reason, it's imperative that trustees have in place a robust scam-protection process that identifies wider scam-warning signs to give members as full protection as possible from scammers.”

Restricting the statutory right to transfer

The upcoming measures follow a High Court judgement in the case of Donna-Marie Hughes and Royal London in 2016, regarding an appeal by the former against a determination of the Pensions Ombudsman.

In a statement at the time, Pensions Ombudsman Anthony Arter said the High Court ruling “provides instruction to trustees and administrators that, assuming the other requirements for a statutory transfer right are made out, members do not need to be in receipt of earnings from an employer sponsoring the occupational pension scheme to which they wish to transfer their pension. Earnings from another source are sufficient.

“It seems likely that most transferring members will meet this requirement so, beyond verification of earnings and the provision of risk warnings, trustees and administrators will be conscious that under current legislation they cannot refuse such a transfer – even if they have significant concerns that it may be for the purposes of pension liberation.”

But under the new measures, trustees, pension managers and administrators must request evidence from a member to demonstrate an employment link if the transfer is to an occupational pension scheme.

Karl Lidgley, client manager third-party administration at Hymans Robertson, notes that the new measures add an additional layer of governance for suspect transfers that should assist in identifying potential scams: 

“This will enable trustees to refuse a transfer where it was previously difficult for them to do so. Overall, it should help prevent scams and provide a higher level of protection for savers' pensions.”

However, John Wilson, head of technical at Spence & Partners, says trustees may feel “exposed on two fronts: blocking transfers that turn out not to be scams and allowing transfers that do ultimately involve a scam.”

Indeed, Kirsty Pake, senior associate at law firm Sackers, highlights the subjective nature of some of the flags.

An amber flag is present where trustees or managers of the transferring scheme decide that “there are any unclear or high fees being charged by the receiving scheme”, for example: “Trustees and their administrator will need to decide who is best placed to determine whether a red or amber flag is present and how this should be dealt with,” says Pake.