"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"
The new rules will enable trustees to prevent a transfer request if they see evidence of ‘red flags’. They will also, for other potentially fraudulent transfers, prevent people’s savings being moved to suspect schemes without them receiving expert guidance. These conditions can relate to both the destination of the transfer or where the pension saver is unclear about how their money will be invested or how much they will be charged for their savings to be managed.
Under the regulations, trustees and scheme managers will be required to confirm the transfer is to one of a number of types of receiving scheme which present a "low scams risk". If that is the case, the transfer can proceed without any further checks or requirements for members to provide further evidence to the trustee or scheme manager.
If the transfer is not to one of those listed types of scheme, members can exercise their statutory right to transfer on condition that certain prescribed evidence is provided. Trustees need to confirm the member has demonstrated an employment link between themselves and the occupational pension scheme they wish to transfer to. If they wish to transfer to a QROPS and they can’t demonstrate an employment link, they will be required to demonstrate residency in the same financial jurisdiction as that of the scheme to which they wish to transfer. Where these employment and residency conditions are met, the transfer proceeds.
If neither of the previous two cases apply, then the trustees or scheme managers must decide if any of the prescribed circumstances that would prevent a transfer are present. Should any of these 'red flags' be present, the transfer may not proceed. If red flags are not present, the trustees or scheme managers must decide whether any of the circumstances where the member must be referred to specified scams guidance apply. If these are present, the transfer may only proceed once the member provides evidence of having taken the guidance.
The government aims to introduce the regulations in Autumn 2021.
Guy Opperman, Parliamentary Under-Secretary of State at DWP, said: "Pension scams are a menace. They cost people their life savings, and have a devastating financial and emotional impact on their victims. The Government is fully committed to working with regulators, industry and enforcement agencies to protect people from pension scams through transfers from one pension scheme to another and make it as hard as possible for criminals to carry out their malevolent intentions.
"That is why I intend to take forward the implementation of the measures introduced in Section 125 of the Pension Schemes Act 2021, which received broad cross-party support.
"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.
"My officials and I have had extensive discussions with industry and the regulators in setting the level and detail of our ambition. We know there is a tremendous amount of good work already going on and want to build on that. I expect trustees to continue to undertake due diligence, however; I want that process to be supported by the clear conditions set out in these regulations."
Ian Browne, pensions expert at Quilter, commented: “The powers for trustees provided under the Pension Schemes Act will go some way to keeping pension savers’ hard-earned savings safe.
“The online world is teeming with dubious and downright fraudulent financial propositions, and the ban on pension cold calling has arguably just meant that fraudsters now target pension savers via email or on social media. But now if someone is encouraged to transfer their pension after unsolicited contact anywhere, including social media, this will be a ‘red flag’ and schemes may be able to block the transfer.
“But the future regulations will have to strike a delicate balance between maintaining an efficient and quick transfer market, in which the majority of ‘safe’ transfers aren’t effected, while limiting the scam risk across all schemes. The government will need to work closely with the pensions industry to get the finer details of the legislation right.”