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Protecting members from pension scheme scams

Changes to the conditions for a scheme transfer

The right of a member to a statutory cash equivalent transfer value (CETV) will be changing from 30 November 2021.  New Regulations have been introduced which will restrict the rights of members to complete a statutory transfer in certain cases. The conditions set out in the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 will come into force on that same day and provide the conditions which must be met in order for a member to be entitled to a statutory transfer.

These new Regulations have been introduced as a result of the DWP’s consultation on ‘Pension scams: empowering trustees and protecting members’. Their main purpose is to ensure that no CETVs are transferred into schemes where there are warning signs that the scheme represents a possible scam.

The Regulations give transferring trustees more power to intervene where the requested transfer gives cause for concern, by allowing a transferring scheme to prevent a transfer where there are doubts regarding the legitimacy of the receiving scheme.

The New Conditions

Significant changes have been made to the initial draft proposals following the consultation. Included in the changes is that there are now only two conditions, and one of them must be met in order for the transfer to proceed.

First Condition

The first condition is that the transfer is to a public service pension scheme, an authorised master trust, or an authorised collective money purchase scheme. If this first condition is met, then a member will have a guaranteed right to transfer their CETV and the trustees will not be able to require any additional evidence other than to confirm the identity of the receiving scheme.

Second Condition

The second condition is applicable where the first condition is not met. Under the second condition the trustees of the transferring scheme must decide whether the circumstances of the transfer raise either a red flag or an amber flag.

Red flags are where the trustees strongly suspect that a scam is occurring, and there are potential circumstances which mean that the transfer cannot proceed. These include cases where:

  • the member fails to provide any sort of substantive response to the trustees if asked for evidence or information concerning the transfer;
  • the transfer raises an amber flag and the member fails to provide specific evidence relating to this;
  • an unregulated person has been advising the member on a regulated activity (contrary to sections19-20 of FSMA 2000);
  • the member’s transfer request was made following unsolicited contact being made with them;
  • the member has been given an incentive in order to transfer;
  • the member feels they have been pressured into making the transfer.

Amber flags mean that there are circumstances where the transfer can only proceed if the member can provide the trustees with evidence that they have had access to scam guidance which is provided by MoneyHelper through the Money and Pension Service. Amber flags include cases where:

  • the member has not properly complied with a request for information;
  • if the member has provided evidence, the trustees do not believe that it is genuine or provided by the member themselves;
  • the evidence provided by the member does not properly demonstrate the employment link (occupational pension scheme) or residency link (QROPS) where required;
  • the trustees believe the receiving scheme is high risk, has unregulated investments, has unclear or high fees, or other situations highlighted in the Regulations which point to it being a potential scam.

Regulatory guidance

On 8 November 2021 the Pensions Regulator published guidance on how to deal with statutory transfers in accordance to the new conditions from 30 November 2021.

The guidance, ‘Dealing with transfer requests’, advises that trustees and administrators of transferring schemes keep a “clean list” of those schemes they consider low risk and to keep that list under regular review. If the receiving scheme is on the clean list then the Regulator suggests that the transfer can proceed without additional checks and so encourages an easier transfer process where there is little risk of scams.

WM Comment

These Regulations will be welcome to many as they seek to address some of the concerns surrounding the unfortunate issue of pension scheme transfer scams.  Importantly, they give transferring trustees more power to intervene where the requested transfer gives cause for concern, by allowing a transferring scheme to prevent a transfer where there are doubts regarding the legitimacy of the receiving scheme. However, it will require quick action by trustees and administrators to ensure that they are up to date on the contents of the new Regulations, and that transfer processes are updated prior to 30 November 2021. We know from experience around the introduction of the Pensions Regulator’s ‘scorpion’ campaign in 2013 that the Pensions Ombudsman has little patience for schemes that do not update their transfer processes in fairly short order.



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