In June, the DWP published a review of the Conditions for Transfers Regulations 2021, 18 months after they came into force. They have concluded that the overall objective of reducing scam activity is being achieved, although some of the provisions within the regulations continue to prevent legitimate transfers from going ahead.
These regulations were intended to reduce the risk of pension scams by limiting a member’s statutory right to transfer to another pension scheme. They require trustees (or their administrators) to consider a list of red and amber flags, to determine whether any applies in relation to a transfer request. Then, broadly speaking, trustees may transfer a member’s cash equivalent only if they conclude that either:
- the transfer is to a public service scheme, an authorised master trust or an authorised collective money purchase scheme, or
- no red flags are present or, if an amber flag is present, the member has taken guidance on the risk of scams.
The review suggested that 94 per cent of transfers in 2022 were completed under the first condition or the second condition where no flags were present, while 5 per cent of transfers were completed outside the regulations (on a contractual or discretionary basis).
Among 2,400 transfers triggering an amber flag, this arose most often where overseas investments were included in the receiving arrangement or – less frequently – where high-risk or unregulated investments were included. Only 300 transfers were given a red flag and the trigger in nearly half of these cases was the member failing to provide required information.
Generally, feedback was that the policy intent underlying the regulations was appropriate and the regulations were the best way to deliver this. The two provisions causing most concern are the amber flag for transfers which include overseas investments and the red flag for transfers with an incentive. The findings indicate that these are delaying and preventing a significant number of transfers where trustees have no concerns.
The DWP has committed to further work with the pensions industry and the Pensions Regulator to consider if the transfer process could be improved without undermining the policy intent.