Accessibility tools

DWP strengthens transfer regulations to help combat pension scams

DWP strengthens transfer regulations to help combat pension scams

08 Nov 2021

View document here

What you need to know

  • The Pension Schemes Act 2021 provides for new conditions allowing trustees to stop transfers being processed, restricting statutory transfer rights. This is intended to combat pension scams.
  • Earlier this year, the Department for Work and Pensions (DWP) consulted on the detailed regulations to introduce these conditions. The final regulations were published on 8 November 2021, and will be effective from 30 November 2021 so immediate action is needed.
  • The final regulations have changed significantly since the draft regulations were consulted upon. They are now based on two conditions that must be tested, reduced from four in the initial draft. The member only retains their statutory right to a transfer if one of the two conditions is satisfied.
  • The most substantial change is to the ‘First Condition’ which identifies assumed safe destination vehicles. Personal pensions through an insurer no longer satisfy that condition. This reduces the proportion of transfers expected to satisfy this condition from 62% to 2%.
  • This means that almost all transfers will need to be assessed under the ‘Second Condition’. This condition looks for specific warning signs of a pension scam, directing members to government scam guidance in some circumstances.

Actions you can take

  • Check your administrators will have their processes updated in time to carry out the checks required by the new regulatory conditions.
  • Determine how you will identify systemic warning flags across transfers.
  • Consider and agree how you will exercise your trustee judgment in determining whether some of the flags are triggered (e.g. what constitutes a high fee).
  • Review your scam protection procedures to ensure that they are robust and aim to identify potential scams in all cases, not just those which do not meet the conditions set out in the regulations.
  • Communicate with your members to ensure they are aware of the additional information that they may need to provide. Transfer packs should be updated and you may wish to issue a one-off communication.

Applying the rules to previous red flag cases

We applied the First Condition to all transfers covered by our Scam Protection Service since 1 July 2018. Under the draft regulations, 37% of ‘high risk’ transfers would have met the First Condition. The table below shows how changes to the First Condition result in almost all ‘high risk’ cases being subject to further checks.

The finer detail: The two conditions in the regulations

The final regulations set out two conditions that need to be applied to each transfer. These conditions are applied in order and if both conditions are not met then the statutory right to a transfer is removed and trustees can block the transfer from proceeding.

The two conditions, how they differ to the conditions set out in the draft regulations and the actions that trustees need to take, are set out below.

What are the red and amber flags?

For further information, please get in touch with Mark Barlow or Helen Cavanagh or speak to your usual XPS contact.