Earlier this month, the Government passed the long awaited Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021, which will give trustees and scheme managers power to prevent or pause a transfer request if they see evidence of red or amber flags which may indicate an increased risk of a scam. Alice Honeywill and Catrin Young consider some key aspects of the new requirements along with action points for trustees.
When do the new rules apply?
Trustees do not have long to update their processes as the Regulations come into force on 30 November 2021. The key date is the date the member makes a valid application for a transfer under the Pension Schemes Act 1993 (“PSA 1993”), not the date on which the transfer is eventually made:
- for DB transfers, where the member applies for a transfer quote on or after 30 November.
- for DC transfers, the new regime will apply where a member makes a written application to transfer to a selected arrangement on or after 30 November.
- in cases where a member applied to transfer their benefits out of a scheme before 30 November but the transfer occurs after, the previous regime applies.
New processes
The Regulations will require trustees to ensure that at least one of two conditions is met before they process a statutory transfer request from a scheme member. The first and simpler condition is if the receiving scheme is considered to be a low scams risk scheme e.g. an authorised master trust or a public service pension scheme. The second requires more detailed checks from the trustees on the proposed receiving scheme to include checking for an employment link, overseas residency and red and amber flags.
In conducting the required checks for the second condition, trustees and managers must ask the member to provide such evidence or information concerning the circumstances relating to the transfer as they consider relevant. The Regulations state that in obtaining information as to whether to allow a transfer under the second condition, trustees must consider “all of the evidence and information available” and this means not only evidence or information provided by the member in a formal response to a request by the trustees but also other relevant evidence or information, including in particular:
- any information provided by the member or another party to the transfer other than in such a response;
- the fact of a general or specific omission of evidence or information from that formal response; or
- any evidence or information obtained by the trustees or managers of the transferring scheme, including in the course of carrying out their duties in relation to that, or another, pension scheme.
The words highlighted in bold may cause additional administrative and communication challenges for professional trustee companies. Whilst third party administrators typically maintain “white lists” of acceptable transferring schemes and/or “red lists” of those schemes suspected of being part of a scam, query whether many professional trustee companies currently do and, if so, whether red lists in particular are routinely communicated to in-house and third party administrators working on their various schemes? Certainly, as drafted, the Regulations will require professional trustee companies to maintain central lists of suspected scam or acceptable receiving schemes and these will need to be created and maintained from each individual employee’s knowledge and experience from working on their schemes.
Failure to comply with the statutory requirements may result in claims from members if transfers are made to schemes which the professional trustee company should have suspected, from its work on other schemes, involves a scam. On the other hand, if professional trustees refuse or delay a transfer to a scheme which the business knows to be genuine, could they face civil penalties from the Pensions Regulator for not complying with the member’s request within the statutory deadline?
All in all, whilst the additional flexibility to deal with difficult cases is largely welcome, the regulatory burden and risks of dealing with member transfer requests for professional trustee companies is not getting any easier.
Actions for trustees:
- discuss with administrators how transfer processes will be updated, including changes to standard paperwork, processes for trustee evaluation and decision-making, and (where applicable) sharing of information between professional trustees and administrators;
- review scheme rules to check that the changes to statutory rights flow through so that there is not an inadvertent scheme right to transfer in situations where the legislation now offers flexibility;
- for professional trustees, ensure adequate internal controls and governance is in place to enable the collation and sharing of information relating to potential receiving schemes across all scheme appointments.
Certainly, as drafted, the Regulations will require professional trustee companies to maintain central lists of suspected scam or acceptable receiving schemes and these will need to be created and maintained from each individual employee’s knowledge and experience from working on their schemes.