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The Department for Work and Pensions has released its Consultation ‘Pensions Scams: Empowering Trustees and Protecting Members Consultation’ on draft Regulations aimed at curbing the growing risk of pensions scams when transferring between pension schemes. The deadline for consultation responses is 10 June 2021 and the intention is for the Regulations to be in place by Autumn 2021.
All Trustees and administrators will want to note the proposed requirements and the potential impact on transfer processes in the future.
Proposed new conditions on statutory transfer right
Broadly put, the proposal is that in statutory transfer cases, trustees will need to check that:
- the receiving scheme is on a “white list”; or
- there is a genuine employment link between the member and the receiving scheme; or
- for a transfer to a QROPS and the employment link is not established, that the member can establish a residency link by proving they have lived in the overseas jurisdiction for at least six months.
If the transfer does not meet one of the first three conditions, trustees will need to decide if a fourth condition is satisfied, which involves assessing whether any “red flags” or “amber flags” are present.
- Trustees can prevent a statutory transfer if there are any red flags (such as the member being offered incentives to transfer, or unsolicited contact to the member from an adviser).
- Trustees should require members to take expert scams guidance from the Money and Pensions Service if there are amber flags (such as there being a high risk, unregulated investment or high fees in the receiving scheme, or where the investment structures are unclear, complex or overseas).
What does this mean in practice?
The challenge for Trustees (as currently) will be finding the balance between protecting members and not over-doing diligence (and causing delays).
Suzanne Padmore, Partner in our Pensions Disputes team who has steered trustee boards through many complicated transfer requests comments: “Trustees are currently between a rock and hard place when balancing the statutory right to transfers and the risk of scams. It is essential that the proposed regulations provide a clear framework of circumstances in which a right to a statutory transfer will not arise, so that trustees can confidently make decisions to protect members without the risk of subsequent claims. I am concerned that the draft regulations still place a lot of discretion on the trustees to assess the available information, and will watch the consultation with interest to see if there is any more appetite to place more responsibility on the member to make good their right to transfer”.
As now, Trustees will want to ensure they follow good governance and audit procedures to identify potential scams and also to protect themselves should transfers go wrong or members complain about the Trustees’ approach – particularly as the proposals mean that administrators might refer more transfer requests to trustee boards.
Our upcoming newsletter will look at the possible implications in more detail.
If you have any questions on scams, transfer rights or processes, please contact Chris Brown, Director and Suzanne Padmore, Partner.
Ideally, we do not want to prevent or impose unnecessary barriers on transfers where there is minimal or low risk of a pension scam. 25. However, there is a need for those running a pension scheme to have a greater ability to intervene and prevent a transfer where there is a risk of a scam or fraud.
