Almost half of schemes have more work to do to comply with new anti-scams transfer guidance, while nearly 10 per cent have “lots of work” to do, an XPS webinar has heard.
Participants at the group’s ‘Stopping pension scams’ event on Tuesday were asked to rate their scheme’s preparedness for new restrictions on transfers.
Just less than half (47.2 per cent) of respondents said their schemes still had some work to do, while 8.6 per cent said they had “lots of work to do”. By comparison, 36.5 per cent reported being “almost there”, while only 6.1 per cent were “completely prepared”.
Having worked with colleagues who have worked night and day over the past month to get some schemes ready for this new regime, this is a fundamental shift in the game – and trustees need to be ready for it
Francois Barker, Eversheds Sutherland
As Pensions Expert and FTAdviser reported in November, the new regulations will require checks to assess whether a pension transfer request meets certain conditions to enable a statutory right to transfer.
The regulations will empower trustees and scheme managers to prevent a transfer request when a ‘red flag’ is present; for example, if a scheme member requests a transfer after receiving an unsolicited contact or being offered an incentive to transfer.
In instances of any ‘amber flags’, such as investments that would normally only be offered to sophisticated investors, a member must obtain guidance from the government’s MoneyHelper service before the transfer can go ahead.
Casting a wide net
The new regulations state that for transfers to proceed without checks and delays they would have to satisfy one of two conditions.
The first condition is if the receiving scheme is a public sector scheme, an authorised defined contribution master trust, or an authorised collective money purchase scheme.
Helen Cavanagh, consultant at XPS, told the webinar that only around 5 per cent of schemes would meet the first condition, meaning 95 per cent would have to be assessed under the second condition.
The second condition requires trustees to determine whether there are any red or amber flags, and is only satisfied if trustees conclude there are none present. Trustees can require members to provide evidence to help with this decision, and amber flags can be upgraded to red flags if certain actions are not taken.
Cavanagh said that of the 1,800 transfers requested over the past year, 10 per cent raised red flags, “which is a fairly significant amount”.
In the majority of these cases, it was because the independent financial adviser involved was not authorised to provide advice.
A quarter of all transfers resulted in an amber flag under the second condition, and “in total, our analysis shows that a third of all transfers would have exhibited either a red or an amber flag. This is significantly higher than the 5 per cent of transfers that the Pension Scams Industry Group estimates give trustees and scheme managers real cause for concern”, she said.
She added that trustees should consider the new regulations as setting a minimum requirement, and satisfying their requirements will not guarantee that a potential transfer is not a scam.
XPS estimates that of the transfers it looked at throughout the year, 30 per cent exhibited at least one warning sign that is not covered in the new regulations.
Is the legislation too broad?
Mark Barlow, partner at XPS, noted that the rules had been drafted “pretty broadly in terms of what triggers an amber flag”, and that some interpretations could have it that the mere presence of an overseas investment could be sufficient to trigger an amber flag.
In response, John Canavan, of the Department for Work and Pensions, said that the regulations had been drafted in response to widespread industry concern, and “we had to be fairly broad, because we couldn’t specify what was a good overseas investment or a bad overseas investment”.
“If you are transferring to a scheme and you know there’s an overseas investment in it, and you’ve got no concerns about it whatsoever, our impression is that these regulations do not prevent you carrying on in that way,” he said.
“We’re trying to capture an issue that was raised with us in broad enough terms to enable people to act on it where they’ve got concerns. And as [the Pensions Regulator’s] guidance is set out, we don’t see overseas investments being as broad as ‘every single investment that is set overseas’.
“We do not see our regulations adding anything additional.”
Francois Barker, head of pensions at Eversheds Sutherland, disagreed, saying: “If I were a trustee, and the law told me a receiving scheme with overseas investments was an amber flag, I would be relying on that and not on the regulator’s guidance.
“I can see trustees, certainly in the early days, referring a lot of transfers to MoneyHelper, because that is the way they get a safe harbour if an amber flag pops up. So I do think that the breadth of the legislation is an issue that cannot simply be countered by regulatory guidance.”
He also “fundamentally” disagreed with the suggestion that the regulations do not add anything.
“Having worked with colleagues who have worked night and day over the past month to get some schemes ready for this new regime, this is a fundamental shift in the game — and trustees need to be ready for it,” Barker said.
How will the new pension transfer restrictions work?
The new pension transfer rules coming into force on November 30 will bring added duties for pension scheme trustees, and will not be a panacea to prevent scams, specialists warn.
In particular, trustees will need to be able to delegate should the number of cases exceed their capacity to deal with each one, and will require a new suite of member communications and other documents, he explained.
“This makes them the arbiter of whether a member has a statutory right to transfer. But it does expose [trustees] to more risk,” he added.
