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In a major development in the fight against pension transfer scams, new, long-awaited, regulations will come into force in England, Wales and Scotland from 30 November 2021. These regulations will give pension scheme trustees and managers significantly more power than they have ever had before to refuse a statutory transfer where they consider there is a risk that the transfer is part of a pensions scam.
This briefing summarises the key issues trustees and scheme managers need to know, together with a number of actions they should take to ensure compliance with the new requirements.
Trustees and Scheme managers have often found themselves caught between a rock and a hard place when dealing with statutory transfer requests. They are often left with no alternative but to proceed with the transfer to a domestic or overseas registered pension scheme, even where there is knowledge or suspicion of scam activity. If they do not proceed with the transfer, trustees or scheme managers run the risk of member claims and/or a complaint being made to the Pensions or the Financial Ombudsmen for their failure to do so.
Considerable progress has been made within the past decade to prevent scams, with an abundance of regulatory guidance provided to promote best practice of those managing pension schemes. However, it was still clear that the current framework was not sufficiently robust to enable transfers to be refused where scam activity was suspected.
To address this, the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 (the Regulations) will impose a new two-condition test for trustees or managers to follow when assessing the scam risk of a statutory transfer request. This is summarised below.
The first condition is the lower risk test. This requires trustees or scheme managers to be satisfied beyond reasonable doubt that the proposed receiving scheme is:
If any one of these conditions are satisfied then the due-diligence exercise required of trustees or scheme managers shall be trimmed down significantly. They will only need to request enough information to enable them to identify the correct scheme (whilst exercising caution that the receiving scheme is not a clone scheme). No further due diligence will need to be taken and the transfer may be processed by the trustees or scheme manager.
A second condition will apply in respect of any other transfer which does not satisfy the first condition This is broken down into two types of transfers:
The Regulations provide a suggested (but not exhaustive) list of red and amber flags, as follows:
Where any one or more red flags are present then the transfer cannot proceed. Where any one or more amber flags are present then the trustees or scheme manager can only approve the transfer if the member provides evidence they have received scam guidance from MoneyHelper (including the provision of the reference number).
A helpful overview of the decision-making process for Trustees and managers is available on the Pensions Regulator’s website.
The Regulations will be reviewed in 18 months’ time, to consider their effectiveness in preventing pension scams.
Trustees and scheme managers should consider the following actions in preparation for the Regulations coming into force:
Whilst the new measures will give valuable protection to trustees, scheme managers and members alike in respect of future transfers, claims and complaints being made in respect of historic transfers are continuing to come through. When faced with a complaint or claim, trustees or scheme managers should seek legal advice without delay.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions.
16 November 2021