Trustees given transfer halt powers

The new rules, which stem from the Pension Schemes Act 2021, will allow trustees to refuse transfers where there is suspicion of scam activity. 

When processing the transfers, trustees will be encouraged to pass through several steps of due diligence, and approved transfers must not signal any of the red or amber flags listed in the regulation.

Red flags include a member failing to provide required information, unsolicited contact or pressure that has contributed to the transfer request, or the use of an incentive to make a transfer.

Amber flags will require greater guidance from Pension Wise. These can include the presence of high-risk or unregulated investments in the receiving pension scheme, as well as unclear or high fees. 

Halted transfers will be referred to the Money and Pensions Service for guidance. 

“We welcome these new regulations, which further empower trustees to act as the first line of defence against scammers,” said Nicola Parish, TPR executive director of frontline regulation.

Up until now, schemes have not been able to refuse transfers in cases where members have a statutory right to do so.

The new regulations have been welcomed in the industry, with Renny Biggins, head of retirement at The Investing and Saving Alliance, applauding their design.

“It is important to note that the process does allow for scheme discretion. The additional steps in the process should only be triggered where an element of uncertainty relating to the receiving scheme exists,” he said.

“If the revised transfer journey works as intended in an operational environment, we should not see the new regulations create additional delays for most transfers.”

Since their initial proposal, the inclusion of a ‘safe destination’ list for insurance companies administering transfers has been dropped from the regulations.

Tom Selby, senior analyst at AJ Bell, said this puts the onus of due diligence more on trustees, but offers them greater legal protection in exchange.

“Whereas previously blocking a suspicious transfer came with the real risk of being sued, this legislation creates a specific legal framework within which members’ interests can be protected,” Selby said. 

“Provided firms apply these rules sensibly and don’t delay matters by asking the risk questions on transfers where it is clear the risks are very low, they should add extra security for transferring members without impacting the vast majority of legitimate transfers, he added.

Pointing out that data from the Financial Conduct Authority and TPR show that more than £30m was lost to pension scammers between 2017 and 2020, Jon Greer, head of retirement policy at Quilter, said the new rules could have gone further. 

“The regulations do not empower pension providers to raise a red flag where they have a reasonable belief that the customer has been contacted by an individual or organisation that is subject to a warning on the FCA’s warning list,” he said. 

“While the FCA’s warning list is by no means a comprehensive list of scammers, it is illogical to exclude it given it’s such an important tool in pension schemes’ arsenal to detect and prevent fraudulent transfers.”