Scam warnings on DB transfers near record high

Scam warnings on DB transfers near record high

The number of scam warnings on defined benefit transfers is near a record high, despite a downward trend in transfer activity, XPS Pensions said.

The XPS Red Flag Index identified that in March, seven in 10 (70 per cent) of transfer requests made across the month exhibited indicators of a scam. 

The rise represents the third consecutive monthly increase in the scam warning flags, which are up from two out of every three requests in February. 

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XPS said it was the highest rate of scam flags since December 2020, when 76 per cent of requested transfers showed a sign of a scam.

Helen Cavanagh, Client Lead, Member Engagement Hub, XPS Pensions Group, said: “We are continuing to see that the updated transfer regulations are having a significant impact on the volume of scam warning flags that are being observed. 

“Whilst the volumes of transfers that are being stopped from proceeding under the regulations are low, many of the flags seen require the member to seek additional scams guidance from MoneyHelper, so there will continue to be pressure on the service to provide guidance to all these members in a timely manner.”

Data from XPS Pensions also revealed a recent downward trend in transfer activity in March, with transfer activity falling to a rate of 38 in every 10,000 members transferring per year, down from 40 the previous month.

There was also a fall in the Transfer Value Index, with the month-end average being £245,000, a fall of 2 per cent compared to February and 9 per cent lower than the peak in November 2021. 

Mark Barlow, head of member options at XPS Pensions Group, said: “Members tend to be more cautious in times of economic uncertainty, so it is not surprising that transfer activity continues to fall.  

“We are concerned that although transfer activity has fallen recently, the current cost of living crisis could lead to members looking to access their benefits, leaving them vulnerable to poor outcomes or, at worst, a scam.”

Although inflation expectations increased over March, a continued rise in gilts yields resulted in an overall fall in transfer values.

Crackdown on DB advice

Last month, a freedom of information request to the Financial Conduct Authority revealed that the total number of customers advised to transfer out of their DB scheme had fallen between April 2020 and September 2021 by 31 per cent.

It revealed that 34,053 people were advised to transfer out of their DB scheme in the 18 months to September 2021. This compared to 49,456 reported to have been advised to transfer out in the previous 18 months.

The data showed a decline in transfer recommendations after the FCA moved to crackdown on unsuitable advice in this area and introduced its contingent charging ban

In October 2020, a ban on contingent charging came into effect with a view to remove the conflicts of interest which arise when an adviser only gets paid if a transfer goes ahead.

Only consumers with certain identifiable circumstances, such as those suffering from serious ill-health or experiencing serious financial hardship, are exempt.