Industry calls for balance and guidance on pension transfer scam regs

The Department for Work and Pensions (DWP) has been urged to ensure that incoming regulations regarding pension transfers are balanced and that further guidance is provided to help trustees.

In response to the government’s consultation Pension scams: empowering trustees and protecting members, which proposed regulations around trustees and managers facilitating or halting pension transfers, the Association of Consulting Actuaries called for detailed guidance from The Pensions Regulator (TPR).

It also stressed the importance of administrators being given sufficient time to adapt their processes to the new system.

“We welcome any effort to limit the opportunity for pension scams to succeed and we acknowledge that this proposed limitation on the statutory right to transfer has been a long time coming and has benefitted from the input of a number of stakeholders,” said ACA chair, Patrick Bloomfield. 

“Nevertheless, we find the proposed system complex with the potential to add risk to trustees of transferring schemes.” 

The ACA also warned that ‘amber flags’, which focus on investment and charges, appear to be “harder to operate” than ‘red flags’ because they are more reliant on interpretation.

“Guidance will be essential and even with comprehensive guidance trustees could be put to a lot of work in order to decide whether or not an amber flag exists,” ACA Pension Schemes Committee chair, Peter Williams, added. 

“There is also a clear risk that the meaning of the various amber terms varies over time. We wonder whether a more streamlined mechanism can be made available under which trustees can require the member to take guidance, rather than have to reach a judgment as to whether or not an amber flag exists.”

Premier head of administration, Girish Menezes, said that a balance between speed and protection was needed, noting that there had been “far too much” focus on speed.

“A swift approval can provide a strong, positive decision for some members, but we need to ensure we aren't losing out on the security aspect in light of the increasing number of scams,” he continued.

“There needs to be a balance as we don’t want administrators taking three to six months for a transfer, which is wrong, but in contrast there are those saying it should happen in a day, which is completely irrational. With an insurer to insurer transfer it should be relatively straightforward, but with defined benefit (DB), it's really complex.”

Menezes also highlighted the difficulty in getting a trusted independent financial adviser (IFA) for DB transfers, which he said can leave members “wide open” for scams.

“A trustee could suggest a preferred IFA at point of retirement or on a transfer request because a specialist adviser can provide quality education that can help the member understand whether they should be considering a transfer or not,” he stated.

“As transfer scams become more prevalent, an increasing number of trustees are suggesting an IFA to increase security for themselves and the member.”

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