XPS Pensions Group urges pension scheme trustees to take action now to meet challenging three-week deadline to comply with new transfer regulations
XPS Pensions Group urges pension scheme trustees to take action now to meet challenging three-week deadline to comply with new transfer regulations
08 Nov 2021
The Department for Work and Pensions (DWP) has published the final detailed legislation that gives trustees the power to stop a statutory transfer proceeding. This builds on the framework introduced by the Pension Schemes Act 2021. Trustees will be required to implement the new legislation by 30 November 2021 and so immediate action is needed.
The final regulations are based on two conditions that must be tested and, if neither condition is met, trustees have the ability to restrict a transfer.
XPS analysis suggests that only 2% of past transfers would have satisfied the First Condition and so the majority will be subject to the Second Condition. This focuses on identifying specific warning signs of a pension scam.
The new regulations mean that trustees will need to immediately put in place robust measures to gather information directly from members and assess whether a transfer presents any of the red or amber flags noted in the regulations. This is likely to be very challenging. The subjective nature of some of the flags, for example determining whether a fee is “high”, will require trustees to consider how they will assess some of the flags. Guidance has been published by the Pensions Regulator, which provides some assistance for trustees.
The information gathered by trustees will need to be recorded in such a way to enable systemic flags, like high numbers of transfers to a particular vehicle, to be easily spotted. If a red flag is identified, then trustees can remove the statutory right to transfer.
Data from the XPS Scam Protection Service reveals that at least 12% of transfers could have been blocked over the last year if these new regulations had been in force. However, 1 in 2 of those that could have proceeded exhibited at least one scam warning sign, highlighting the importance of considering a wider range of warning signs than just those in the regulations.
Mark Barlow, Head of Member Options at XPS Pensions Group, commented:
“We welcome the strengthening of the transfer regulations and our experience suggests that that they will make a real difference in the fight against pension scams. However, satisfying these regulations isn’t a guarantee that a transfer isn’t a scam and so trustees should look out for wider warning signs, such as a member in good health being told they can access their benefits before age 55.
Trustees need to act immediately to decide how they will assess the flags and to put in place an efficient and effective process to obtain the information from members. They should also let their members know as soon as possible about these additional checks and the circumstances in which their transfer may be blocked so this does not come as a shock.”
Helen Cavanagh, Client Lead for the XPS Member Engagement Hub, added:
“Having provided a Scam Protection Service to pension schemes since 2015, we empathise with trustees who will have to develop and implement a robust process in three weeks. It’s critical that trustees immediately review what their administrators currently do and what gaps they need to fill to satisfy the regulations.
These regulations are going to require trustees to gather more information directly from members. Our experience is that speaking directly to members is the only reliable way of collecting this information.”