Govt could tweak amber flag rules for overseas investments

The Joint Committee on Statutory Instruments of the House of Commons and House of Lords warned that transfer scam rules may be capturing more transfers than needed, as some overseas investments will be low risk.

As part of regulations introduced last November, trustees can pause or block pension transfers if they deem it 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. 

But this has resulted in many transfers being delayed.

Under the rules, an amber flag is raised where the trustees of the transferring scheme decide that there are overseas investments included in the receiving scheme.

The Department will consider amending the regulations to avoid the amber flag capturing more pension transfers than is intended.DWP

But given that most schemes include overseas investments, the committee said this could result in a very large number of pension savers being required to take scams specific guidance from Maps before the transfer proceeds.

The DWP told the committee it is not the intention of the regulations to capture circumstances where there is in fact a low risk of a scam.

But the DWP admitted since the rules came into force, it has been made aware of a potential issue of too many pension transfers being caught by the amber flag.

It told the committee that the government is engaging with industry representatives to reach an understanding of the potential issue and the distinction between those overseas investments that present scam risk and those that do not. 

In its report the committee stated: “If there is an issue, the Department will consider amending the regulations to avoid the amber flag capturing more pension transfers than is intended, while maintaining the policy intent of safeguarding against potential scams facilitated through certain schemes that include overseas investments.”

A spokesperson for LCP said: “There is, of course, a world of difference between investing in Cape Verde storage pods and shares in Microsoft listed on the New York Stock Exchange.

"Unfortunately, where the regulations talk about an ‘overseas investment’ they do not seem to make this distinction.

“This is an issue that has been known about since the regulations were laid before Parliament. We look forward to hearing how the DWP is going to resolve it.”

A DWP spokesperson said: “Our new transfer regulations are helping protect people from fraudsters trying to trick them into moving their pension pots into scam accounts, striking the right balance between providing necessary protections for pension savers against scams while ensuring they still have freedom and choice about where their savings are invested.

“The government has committed to reviewing the new regulations within 18 months to ensure they remain as effective as possible in targeting the evolving methods used by scammers, and has begun engagement with industry about gathering the data to inform that review.”

amy.austin@ft.com