The government has confirmed plans to allow pension transfers to 'reputable' schemes without requiring further checks against existing scam warning flags, as part of reforms intended to simplify legitimate transfers while strengthening protections against fraud.

In response to the consultation on amendments to the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021, the Department for Work and Pensions (DWP) confirmed it would proceed with most of its original proposals, with the revised regulations expected to come into force in April 2027.

The changes will broaden the regulations' First Condition to allow transfers to proceed where trustees are satisfied, on the balance of probabilities, that the receiving scheme is reputable, without needing to assess the red and amber flags under the Second Condition.

The government said this would reduce unnecessary checks for low-risk transfers, allowing trustees and administrators to focus their resources on cases presenting greater potential risks.

However, the DWP acknowledged concerns about how the term 'reputable' would be interpreted and confirmed that it would work with The Pensions Regulator (TPR) to develop a non-exhaustive list of factors to support trustees in making these assessments.

Despite calls from some industry respondents to use alternative terminology, such as 'acceptable' or 'trustworthy', the government maintained that 'reputable' remained the most appropriate term.

Arc Pensions Law partner, Ben Fairhead, said the move represented the most significant change for the industry, although further clarity would be needed before implementation.

"We await sight of the actual final wording to be used in the amended regulations," he continued.

"However, it looks like there will be only limited changes to the wording that was put forward in June when the consultation was launched.

"In particular, the plan to allow transfers to 'reputable' schemes to go ahead without reference to the red and amber flags is set to go ahead, despite some calls from the industry to use an alternative term like 'acceptable' or 'trustworthy'."

Fairhead suggested that the changes could lead to the wider adoption of lists identifying schemes considered suitable for transfers.

"That is likely to be the biggest change facing the industry. We can expect to see that in force come April next year. To the extent trustees and providers are not already operating with the use of green/clean lists, this might well become the norm," he added.

However, Fairhead highlighted uncertainty over whether legislation or regulatory guidance would include the factors used to determine whether a scheme was reputable.

"Guidance would be preferable in our view to allow better scope for evolution of the factors as scams have a habit of changing over time," he explained.

"Either way though, advanced sight of that list will be critical: those handling transfer requests will need to be ready with modified processes before the amended regulations take effect."

Alongside the changes to the First Condition, the government confirmed plans to introduce additional safeguards for transfers into small self-administered schemes (SSAS).

Under the proposals, a new red flag will apply where the evidence provided fails to demonstrate an employment or other relevant relationship between the transferring member and the receiving scheme.

Following consultation feedback, the government also announced an additional amber flag for SSAS transfers where the necessary relationship has been demonstrated and the transfer is otherwise able to proceed.

This will require members to attend a Money and Pensions Service (Maps) guidance appointment before transferring, providing information on the governance responsibilities and potential liabilities associated with SSAS membership.

The DWP argued the additional safeguard was necessary because an employment relationship alone could not eliminate all potential scam risks.

Meanwhile, the government confirmed plans to exempt members from repeated Maps safeguarding appointments where they had already received guidance within the previous 12 months.

However, transfers into SSASs will be excluded from this exemption, reflecting the additional risks associated with these arrangements.

The government will also remove the overseas investment amber flag, following concerns that it was unnecessarily delaying legitimate transfers, given the prevalence of overseas assets in pension investment strategies.

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