The law on the transfer of pension benefits is changing on November 30.
From that date, trustees will have new obligations intended to help members avoid pension scams.
Some members may find it difficult to transfer their pension benefits to the scheme of their choice as a result.
While I refer here to “trustees”, the changes apply to both occupational and personal pension schemes – so are applicable to scheme managers too.
What’s the current position?
Up until now, trustees who suspected a member may be falling victim to a pension scam have found themselves in a tricky spot.
If the member has a statutory right to transfer their pension benefits – as most do – the trustees risk breaching the law if they refuse the member’s request.
On the other hand, they face criticism and complaint if they let the transfer go ahead and the member loses their retirement savings as a result.
What’s changing?
New rules make things easier for trustees by prohibiting them from agreeing to a statutory transfer request if there is credible evidence it may be part of a scam.
These regulations, along with accompanying guidance from the Pensions Regulator, set out the process trustees must follow when dealing with a transfer request.
The new regime
Members who want to transfer their pension benefits will need to provide trustees with certain basic information about themselves and the scheme they want to transfer to.
The new regulations also set out a list of red and amber “flags”.
If an amber flag is identified by the trustees, the member must be referred to MoneyHelper, and evidence they have attended an appointment with an adviser is needed before their transfer can proceed.
If a red flag is identified, trustees must refuse the member’s transfer request.
If the member is trying to transfer to a qualifying recognised foreign or occupational pension scheme, they will need to provide satisfactory evidence of overseas residence or an employment link with the new scheme – as appropriate.
A refusal to do so will constitute a red flag that means the trustees must reject the transfer.
The amber and red flags in the regulations are not exhaustive, so trustees should keep up to date with evolving scam tactics and consider good industry practice at the time.
Many in the industry have long campaigned for statutory transfer rights to be restricted.”
Records should be kept of the trustees’ assessment, decision-making and communications with the member.
This will be important if the member challenges the trustees’ decision and seeks to raise a complaint.
A member whose transfer request is refused should be provided with details of the scheme’s internal dispute resolution procedure in case they want to appeal the decision.
These regulations herald a new dawn in the fight against pension scams.
There will be some who are questioning whether the correct balance between member autonomy and protection has been struck.
Many in the industry have long campaigned for statutory transfer rights to be restricted where there is evidence a transfer may be part of a pension scam and have grown increasingly frustrated at how difficult it is for trustees to protect members.
But there is no denying the regulations restrict the freedom given to members to exercise control over their pension savings.
I for one welcome the regulations, but I know there will be some who are questioning whether the correct balance between member autonomy and protection has been struck.
There’s a lot to get to grips with here for trustees, and not much time in which to do it.
Eilidh Robertson is a senior solicitor in the pensions team at law firm Burness Paull.
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