Pensions  

What do the new pension transfer rules mean for trustees?

  • Describe the new rules on pension transfers
  • Explain the conditions ceding schemes have to meet
  • Identify how these rules will help clients
CPD
Approx.30min
What do the new pension transfer rules mean for trustees?
Photo by Cytonn Photography from Pexels

On November 30 last year further changes to the law were made aimed at protecting pension savers from being exploited by means of a pension transfer.

Under the new pension transfer regulations – the occupational and personal pension schemes (conditions for transfers) regulations 2021 – a transfer request can only proceed if one of two conditions are met.

The new conditions are aimed at flushing out the risk of a pension scam and if one of the conditions is not satisfied, the transfer cannot go ahead and trustees or scheme managers must refuse a member’s request.

The new rules catch transfers from occupational pensions schemes and personal pension schemes, and apply to defined contribution transfers as well as defined benefit transfers. The one exception is where a pension transfer is made outside the statutory transfer framework at the discretion of the transferring scheme.

But even in the case of such non-statutory transfers, the new conditions will have a practical relevance as sensible barometers of the risk of a pension scam.

The battle against pension transfer scams has been going on for years and this latest change in the law follows the 2019 ban on cold-calling and measures to make it harder for fraudsters to establish rogue pension schemes. 

This is the first time, however, that the trustee and scheme manager role on the frontline of preventing pension scams has been put on a firm legal footing with the power to block or pause a pension transfer.

Before the new rules, it was difficult or impossible to prevent a transfer showing the telltale signs of a pension scam because of the member’s ultimate statutory right to transfer out.

Once danger warnings had been provided, this left trustees and managers toothless in the face of an insistent member who was in the thrall of unscrupulous introducers or unregulated financial advisers and misled about a transferring scheme’s vested interest in hanging on to their pension savings and frustrating the member’s wishes.

Now trustees and scheme managers “have the tools to act” under legislation so that they can require information and evidence from members, make assessments of the scam risks, and decide whether a transfer request should proceed, be stopped or be paused while the member takes guidance from Money Helper, the free service provided by the Money and Pensions Service.

Two conditions 

To go ahead, a statutory transfer must satisfy the first or second condition. The first applies where the destination scheme is an authorised master trust, local government pension scheme or collective defined contribution scheme. These receiving schemes are essentially blessed in advance as presenting a low risk of a pension scam and, provided the transfer is genuinely to that scheme (as opposed to, for example, a clone arrangement) and there are no (unexpected) glaring signs of a scam, then a transfer can proceed without further fanfare.

The second condition applies to all other transfers and involves an assessment of whether there are any red flags (heightened risk) or amber flags (potential risk) of a pension scam.