Govt’s new anti-scam measures cause industry concern

The Department for Work and Pensions on Friday published a new consultation giving scheme trustees and managers new powers that, the government said, will provide additional protection for members against scams.

The government had already, in response to a previous consultation, imposed restrictions on the statutory right to a transfer, limiting it except in those cases where, for instance, the recipient scheme was a master trust, a personal pension scheme authorised by the Financial Conduct Authority, or where a genuine employment link between the member and the recipient occupational scheme could be evidenced.

The new proposals go further, requiring scheme managers and trustees to confirm that a transfer is to one of the number of schemes declared to have a low scam risk.

There is a legitimate desire to allow individuals to choose the pension scheme that best suits their needs, but there is also a clear need to protect individuals from the scammers who would leave them with no pension at all. Coming up with a solution that meets both objectives is always going to be a difficult balance

Stuart Reid, SPP

If it is considered a low risk, then no further action or confirmation is needed. If it is not, members can only exercise their right to a transfer if they can provide “certain prescribed evidence”.

Trustees will need to be able to confirm that the member has demonstrated a genuine employment link between themselves and the recipient occupational scheme.

Should they wish to transfer to a Qualifying Recognised Overseas Pension Scheme for which they cannot demonstrate an employment link, the member will need to show that they reside in the same financial jurisdiction as the scheme in question.

If neither of the preceding applies, then it is for the trustees and the scheme manager to determine whether there are any “red flags” associated with the transfer. If there are, the transfer will not proceed. If there are not, then the trustees and manager will still have to determine whether it is necessary to refer the member to specific scams guidance.

If it is, because certain conditions have been met that the government calls “amber flags”, then the transfer cannot proceed until the member has provided evidence that they have taken the guidance.

However, trustees and managers are not required to seek information from the member to identify whether the red or amber flags are present. The proposal is only that they be given the power to do so “if needed”.

In his foreword to the consultation, pensions minister Guy Opperman wrote: “These measures empower trustees and managers to act and build on the ban on pensions cold calling and tougher rules to stop scammers opening fraudulent pension schemes government has already introduced.” 

New powers are ‘ill-conceived’

Some of the sternest criticism of the new proposals came from those who saw in them the potential to needlessly delay legitimate transfers, which caused AJ Bell chief executive Andy Bell to warn that the cure may be “worse than the disease”.

“Unfortunately, that is a real risk with the DWP’s proposed reforms, which could require savers to satisfactorily answer a set of questions before they are allowed to transfer their pension unless they are moving their fund to a ‘safe destination’ scheme,” he explained.

Bell argued that classifying insured pension schemes as a safe destination while excluding platform pensions “is arbitrary”, and cautioned that “some firms will undoubtedly take a risk-averse approach and ask them on all non-safe destination transfers”.

“If providers take a blanket approach and ask these questions of all transfers to schemes not on the safe destination list, pension transfers could be pushed back into the dark ages. That would be ludicrous, could cause serious consumer detriment and needs to be urgently rethought.”

Andrew Tully, technical director at Canada Life, likewise highlighted the risk of delays. “The industry has worked hard to get transfer turnaround times down and it wouldn’t be good if any new measures caused that to go into reverse,” he said.

Concerns exaggerated?

Others were more sanguine about the prospect of delays. 

Sean Browes, professional trustee at Dalriada, said: “The vast majority of transfers are, and will continue to be, to legitimate arrangements and in most cases administrators will not be required to go beyond step one in determining whether to permit a transfer.”

He said he thought the steps proposed in the consultation “sensible and proportionate”, and so “we don’t hold with the suggestion that large numbers of transfers will be blocked or even unduly delayed”. 

“We acknowledge that transfers to [self-invested personal pensions] not offered by insurers could become more complex, but expect this to be addressed through the consultation,” Browes said.

“While it will not be mandatory to comply with the checks, we expect reputable providers and administrators to have already updated their processes to include due diligence around transfers and to sign up to the Pensions Regulator’s scams pledge.

“This change, coupled with greater and better co-ordinated action against the perpetrators, represents significant progress in the battle against pension scams.”

Government should have gone further

Others raised concerns that the government had not gone far enough, with a spokesperson from the Pensions Management Institute telling Pensions Expert that the DWP should have removed the statutory right to a transfer entirely.

“While we recognise that this would be draconian and represents an option that some might consider extreme, it would have given trustees complete control of transfers made by their scheme. We are satisfied that this would not have any significantly detrimental impact on legitimate transfer activity,” they said.

David Brooks, technical director at Broadstone, said that the proposals could “put members at risk in a confused set of conditions”, not least because it removes the statutory footing for trustees to express concern about transfers to schemes that are on a predetermined “safe list”.

“Trustees and providers have been working hard over recent years to address the scourge of scams and have strong due diligence procedures in place to weed out the bad schemes,” he said.

"We would prefer to see a position that where the trustees have seen evidence of a ‘red flag’ (as defined by the regulations) schemes could still halt the transfer, and where there are ‘amber flags’ members to undertake [Money and Pensions Service] scam guidance.”

By contrast, the new system “risks trustees making transfers where red flags of concern are known to exist”, Brooks added.

Conservative party peer Baroness Ros Altmann echoed similar concerns about inappropriate transfers being allowed to proceed, “possibly where customers lose valuable guarantees, because providers may not wish to honour the guarantee and once the person has transferred, or if there are costs imposed on transferring customers then they may not be best advised to do so” she said.

Stuart Reid, chair of the administration committee of the Society of Pension Professionals, said the split reaction illustrates “the dilemma the government finds itself in”.

“There is a legitimate desire to allow individuals to choose the pension scheme that best suits their needs, but there is also a clear need to protect individuals from the scammers who would leave them with no pension at all,” he said.

“Coming up with a solution that meets both objectives is always going to be a difficult balance.”