Are the Transfer Value Regulations Effective?
3rd August, 2023
Government Review Unveils Insights
Just past the 18 months’ timescale, the government have published the promised review of the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 (the regulations that introduced the red, amber and green flags systems for members interested in taking a transfer). The purpose of the review was to determine whether the regulations remain appropriate and effective in targeting pension scams and whether they generate unintended consequences.
What are the results?
The DWP have concluded that it will conduct further work with the pensions industry and the Pensions Regulator to explore whether changes could be implemented to the regulations to improve the pension transfer experience but without undermining the policy intent.
To give some context to the conclusion. Based on the data gathered (from over pension schemes, administrators and industry bodies) the government estimated that, from 290,000 transfers, only 1% (i.e. 2,900 transfers) had a red or amber flag present (i.e. flags which could have prevented or at least delayed a transfer). Moreover, 2,400 of those were amber flags.
This leads the government to believe that:
- the low percentage of transfers with a red or amber flag (1%) demonstrates there has not been a disproportionate cost to business following the implementation of the regulations,
- while data suggests that the regulations have not significantly lengthened transfer times the increase in waiting times for a Money and Pensions Service (MaPS) pension safeguarding appointment may have potential costs, and
- the original policy intent of the regulations remains appropriate.
The DWP did however hear evidence that the incentives flag is incorrectly blocking transfers due to the different interpretation of this flag by some providers. In addition, the review suggested that the overseas investment amber flag needs to be more clearly defined or removed. It was argued that the way this particular flag is structured can mean that an amber flag needs to be raised even when schemes have no concerns. The review found that overseas investments including in the receiving scheme was the most common amber flag with 57% of amber flags recorded.
Pension regulations, industry concerns
No specific proposals being made to address issues such as overseas investments (where delays in transfers can occur simply because a member’s transfer will be invested in a pooled fund which may include such assets), and incentives (where otherwise legitimate marketing strategies can prevent a member from transferring) is somewhat disappointing.
The pensions industry has expressed concern on the application of the regulations (particularly, the incentives and overseas investment flags). However, any further work conducted by the DWP to consider if changes could be implemented to improve the pension transfer experience, without undermining the policy intent, are unlikely to take effect before next year.
It is encouraging that whilst some pension scheme members have potentially had issues in so far as transfer requests being delayed or blocked. It is reported that, to date, the Pensions Ombudsman has received only a small number of complaints. Further, most of these are in respect of blocked transfers where there has been a red flag.
In our experience
Dalriada’s Irregular Schemes Team, experience on a daily basis, the impact faced by members who have transferred their pension arrangement(s) into what they often later learn is a pensions scam. Any inconvenience caused in a small percentage of cases needs weighed up against minimising the risk of members potentially losing their entire pension funds (often their second biggest asset).
In many cases members can also be ‘sucked in’ by those attempting to defraud them. Who are often persuaded that it is a fault of their ceding arrangements to unjustifiably attempt to hold on to their pension benefits. Clear-cut guidance is essential in enabling transferring arrangements to properly exercise their responsibilities when faced with a transfer request. As well as avoid future claims against their due diligence conduct.
Tactics by scammers will also constantly evolve. Therefore regular reviews of the guidance to ensure that it adapts to any changing tactics may be prudent.
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