Half of pension transfers trigger scam warnings

Half of pension transfers trigger scam warnings

Pension transfer ‘red flags’ increased to 50 per cent in January despite a dip in transfer activity, according to data from XPS Pensions Group.

The consultancy’s monthly transfer index revealed that the proportion of defined benefit transactions showing red flags for a potential scam or for poor member outcomes rose to 50 per cent, after a dip in December, when it stood at 41 per cent.

Helen Cavanagh, client lead at the member engagement hub at XPS Pensions Group, said: “January’s data shows an unwelcome increase in warning flags on transfers.

Article continues after advert

“A lack of member understanding of fees remains the most common flag, which will require members to take scams guidance before transferring under the new transfer regulations.”

As part of regulations introduced in November 2021, trustees are now able to pause or block pension transfers 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.

In January, XPS Pensions Group’s Transfer Activity Index fell by 6 per cent when compared with the previous month, with an annualised rate of 47 members out of every 10,000 transferred their DB pensions in the first month of the year, the lowest rate since the consultancy started tracking this activity in July 2018.

Mark Barlow, head of member options at XPS Pensions Group, noted that the historically low levels of transfer activity are “a sign that members continue to struggle to find suitable financial advice”.

“It’s imperative that schemes do all they can to help members access quality advice before they make any decisions about what to do with their pension pots,” he said.

The consultancy’s Transfer Value Index fell again in January to a month-end average of £253,000, 2 per cent lower than at the end of December.

The decrease was largely due to a continued increase in gilt yields in January and came despite the rises in inflation expectations, XPS stated.

Maria Espadinha is editor at FTAdviser's sister publication Pensions Expert