The Department for Work and Pensions (DWP) has issued revised regulations restricting pension scheme members’ statutory right to transfer where the application process starts on or after 30 November 2021.
The regulations have been redesigned in the light of “invaluable” industry responses to the May 2021 consultation. DWP considers that the potential long-term harm to an individual from being scammed outweighs the detriment of possibly having their pension transfer delayed. Although, the policy intention is that no additional due diligence over and above that which is already carried out will be required in the majority of cases, there will still need to be changes to processes for some transfers and schemes have less than a month to implement these changes.
Outline of the new process
The first new step is to identify whether the transfer is to an authorised master trust, authorised collective money purchase scheme or a public service scheme. If so, the transfer can proceed.
For all other transfers, the second step is to consider whether any additional information needs to be sought from the member. This is determined by whether the transfer is to:
- A UK occupational pension scheme – evidence of an employment link must always be sought
- A Qualifying Recognised Overseas Pension Scheme (QROPS) – evidence of a residency link (or an employment link for occupational QROPS) must always be sought
- Any scheme where there are concerns that there may be a scam – an option to obtain further information.
Finally, the scheme considers whether there is a red flag – in which case the transfer is stopped – or an amber flag – when the member must take scams guidance provided by the Money and Pensions Service (MaPS). In the case of the latter, once that has been evidenced, the transfer can proceed.
Key changes from the original consultation proposals
- Transfers to certain personal pension providers are no longer automatically compliant. Instead, trustees can draw up a ‘clean list’ of providers where they deem no further checks are required.
- Trustees can now prevent a transfer to an occupational scheme or QROPS even where provision of an employment link or residency is demonstrated if they identify some other red or amber flags. Conversely, failure to provide this information can now trigger an amber flag – requiring MaPS guidance – rather than prevent the transfer altogether.
- The legislation expressly provides that trustees can proceed with a transfer if they decide, based on information they already hold, that it is more likely than not (on the balance of probabilities) that substantive red and amber flags are not present in respect of the transfer. The consultation response specifically states that it is not necessary to seek additional evidence or information in all cases and that current due diligence activity can be enough.
- Evidence of the employment/residency link now has to be provided by the member and cannot be provided by a third party.
There were other changes designed to address concerns raised over the provision of information and interpretation of the flags. The Pensions Regulator has issued guidance on questions to ask, the evidence that schemes might request and how to interpret the red and amber flags.
