The Pension Schemes Act 2021 introduced a new system of red and amber flags, designed to help trustees and pension providers combat suspicious pension transfers.
Our latest insight report looks at the new powers given to trustees and scheme managers and what they mean for employers, scheme members and advisers.
Pension transfer fraud has been rising exponentially in recent years.
Under Section 125 of the Pension Schemes Act new regulations mean that the checks must be undertaken before making a transfer. However, transfers can proceed with no further checks to authorised master trusts, authorised defined contribution schemes, and public service schemes.
The Pension Regulator also recommends that trustees and providers maintain a ‘clean list’ of person pension schemes which they have reason to believe are not being used for any scams.
For transfers to schemes other than those to authorised schemes, or those on a providers clean list, trustees now have to assess evidence of employment links to a receiving workplace pension schemes, and also residency when overseas.
The government has said it will review the new regulations within 18 months (ie in 2023) to ensure that they remain effective in identifying potential pension transfer scams.
When it comes to the impact on scheme members, employers and their advisers, the government expects very few transfers to face delays as a result of the new legislation.
The Department for Work and Pensions says that around 95% of transfers, where trustees and scheme managers have no suspicions, should continue to proceed without any additional processes. The new regulations merely aim to provide more effective tools for addressing concerns around the remaining 5%.
Workplace pension providers have embraced the new flags system, with the majority of larger occupational schemes following the new transfer rules well in advance of them becoming mandatory in November.
Many workplace pension providers have also gone a step further in the battle against pension transfer fraud.
In 2020 The Pension Regulator launched a pledge of combat pension scams, supported by the Pension Scams Industry Group. This voluntary pledge called on providers to commit to six actions to protect pension savers.
The six actions are:
- Regularly warn members about pension scams
- Encourage members asking for cash drawdown to get impartial guidance from Pension Wise
- Get to know the warning signs of a scam and best practice for transfers by completing the scams module in the Pension Regulator’s Trustee Toolkit and encourage all relevant staff or trustees to do so
- Study and use the resources on the Financial Conduct Authority (FCA) ScamSmart website, the Pension Regulator’s scams information and the PSIG code
- Consider becoming a member of the Pension Scams Industry Forum by contacting PSIG
- Report concerns about a scam to the authorities and communicate this to the scheme member
Pension providers can self-certify that they have taken action to meet the pledge, in order to demonstrate to members, employers and advisers that they are attempting to tackle pension scams.
So far over 400 pension schemes have pledged or self-certified they are following the principles of the pledge, including 20 master trusts.
The Pension Scams Industry Group also encouraged pension providers to report all suspected scams to Action Fraud, or by calling 101 in Scotland, to help combat the rise in pension transfer fraud.
