According to Freedom of Information request by Quilter to the Money and Pensions Service (Maps), during the first year of the new pension transfer regulations, four out of five (80 per cent) of all amber flags were raised for either an unknown reason or for a potentially low risk transfer relating to overseas investments.
The FOI found that of the 8,395 MoneyHelper Pension Safeguarding Guidance (PSG) sessions that were conducted since the regulations were established in November 2021, nearly half (44 per cent or 3,670) were conducted for an ‘unknown’ reason.
Meanwhile, more than a third (36 per cent or 3,019) were conducted after a flag was raised on potentially low-risk transfers relating to overseas investments.
Reason for amber flag | Number of amber flags raised (Dec 21-October 22) |
Complex investment structure | 211 |
Evidence provided is not genuine | 119 |
High risk/unregulated investments | 458 |
High volume to the same scheme | 42 |
High volume with the same financial adviser | 42 |
Overseas investments | 3,019 |
Unclear/high fees | 834 |
Unknown | 3,670 |
Total | 8,395 |
Quilter asked for clarification on whether Maps would ever consider requiring confirmation of the specific reason why an amber flag was raised.
It argued that making this a requirement of booking a guidance session would help improve both the customer’s understanding as well as the data collection on the reasons for referral.
Jon Greer, head of retirement policy at Quilter, said as an industry, “we are all too aware” of the ongoing unintended issues and delays advisers and their clients are facing as a result of the pension transfer regulations, yet so far there has been little done to improve the situation.
“The current lack of clarity being provided to scheme members in terms of the reason for an amber flag being raised on their pension transfer can lead to customer dissatisfaction and disengagement with MoneyHelper sessions, particularly as the growing number of people needing guidance sessions is resulting in delays in receiving one,” he said.
“As such, Quilter is calling on the DWP to consider making it an explicit legislative requirement for all pensions schemes to provide clear and accurate information to customers on the reason an amber flag has been raised within its upcoming review.”
Greer said if this requirement were to be brought into play, not only could there be an improvement in customer understanding and receptiveness to MoneyHelper guidance sessions, but there could also be a significant shift in the effectiveness of the current data collection by reducing the number of ‘unknowns’ and gaining a clearer picture of the challenges facing the pension transfer landscape.
However, in response, Maps said: “There is no requirement within the regulations for pension schemes to inform their members which flag(s) has been identified during their due diligence process. The only requirement is that they tell their members if a flag(s) is identified.
“At the request of DWP we will continue to record if our customers have been informed of the flag identified by their scheme, but we do not anticipate the number of unknown flags to change significantly. This has no impact on the guidance session delivered to our customer.”
In a separate response, Maps added: “As part of the guidance session we do ask our customers if they are aware of which flag has been raised and if known this is recorded as part of our MI. A large proportion of our customers are not aware of the particular flag or are unwilling to disclose this to us – this is recorded as unknown on our records.”
Quilter said this confirmation from Maps is “a real positive” as it shows it proactively gathers information from the customer on the reason for the amber flag.
Yet, given the significant number of ‘unknowns’, this would suggest there may be a lack of information being provided to members by pension schemes when an amber flag is raised, it explained.
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 while ensuring they still have freedom and choice about where their savings are invested.
“The government 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.”
The spokesperson said to inform that process, DWP has been engaging closely with the pensions industry and the Maps, and all data and feedback will be considered when completing the review.
The first year
During the first year of the regulations, Maps saw a growth in the number of people requiring guidance appointments, which Quilter said was positive to see that so many people may have been saved from fraudsters.
But it said that the current drafting of the DWP rules is not specific enough and has led to many pension savers being forced to take guidance before they are able to make even a low-risk transfer.
Given the current lack of clarity and ongoing delays, which could lead to customer dissatisfaction and disengagement, as well as ineffective data collection, these changes could make a considerable difference to customer receptiveness to Maps guidance sessions and will also help with the assessment of the effectiveness of the regulations by significantly reducing – if not eliminating entirely – the number of ‘unknowns’, Quilter explained.
“For example, triggering a scam guidance session where the receiving scheme offers a range of funds that may have exposure to shares in overseas companies, like those in the S&P 500.
“What’s more, the lack of detail provided to Maps with regards to the reason for an amber flag being raised has led to difficulties in assessing how effective the regulations are.”
Month | Number of MoneyHelper Pension Safeguarding Guidance appointments |
|---|---|
December 2021 | 20 |
January 2022 | 109 |
February 2022 | 222 |
March 2022 | 505 |
April 2022 | 715 |
May 2022 | 1,093 |
June 2022 | 1,067 |
July 2022 | 1,132 |
August 2022 | 1,216 |
September 2022 | 1,159 |
October 2022 | 1,157 |
Total | 8,395 |
Greer said “there should be no doubt” that the first year of the new pension transfer regulations has helped save people from fraudsters.
“We applaud the Maps service for the service they provide,” he said. "However, the positive outcomes have been somewhat watered down by issues faced in the practical application of the rules, as well as a potential lack of information being provided to members which leads to weakened data collection and difficulties in assessing the effectiveness of the regulations.
“We have known for some time that the lack of clarity in the legislative drafting has resulted in a clear divergence between policy intention and the practical application of the law, but our latest correspondence with the Maps shows the issues could also lie with insufficiently clear disclosure to members.”
He explained that while there is no legal requirement that pension schemes inform members on which flags have been identified, the guidance provided by The Pensions Regulator is that it expects schemes to do so, and “it would be remiss of a scheme” not to outline any concerns it has as not doing so would leave a customer unsure of how to act.
“It is vital that the DWP’s ongoing review and subsequent report goes far enough to fully address and resolve the ongoing issues as soon as possible as Maps is a valuable resource which needs to be used efficiently," Greer added.
“Therefore, we ask that the DWP seriously considers making it a legal requirement for schemes to provide their members with clear and accurate information on the reason for an amber flag being raised within this review.”
sonia.rach@ft.com
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