The pensions industry has welcomed the Department for Work and Pensions’ (DWP) consultation on changes to pension transfer regulations, but warned that guidance is needed to ensure a consistent approach.

In its consultation, the DWP proposed the abolition of the overseas investment ‘amber flag’, the removal of the need for checks on transfers to ‘reputable’ pension schemes, and the introduction a new ‘red flag’ for transfers to small self-administered schemes (SSAS) where there is no employment link.

“The proposal to remove the ‘overseas investments’ amber flag in particular is long overdue, and will directly benefit savers who have been sent through unnecessary safeguarding hoops for years now,” commented PensionBee chief business officer UK, Lisa Picardo.

“However, the proposed regulations include a list of suggested factors which trustees and schemes may consider when assessing whether a receiving scheme is ‘reputable’ as part of their due diligence.

“Whilst well-intentioned, care needs to be taken so that this isn’t used by some as a back-door way of needlessly causing friction and once again putting up barriers.”

LCP partner, Christian Macnab, said bringing reputable schemes within the first condition seemed helpful, and should allow more straightforward transfers to proceed without needing to go through the more involved red and amber flag checks.

“However, the success of this change will depend on clear, practical guidance on what ‘reputable’ means in practice,” Macnab warned.

“Input from DWP, The Pensions Regulator and industry bodies such as the Pension Scams Industry Group will be important here, so that schemes can take a consistent and proportionate approach rather than each developing their own informal view of which schemes they are comfortable transferring to.”

Macnab described the proposed removal of the overseas investment amber flag as a “sensible step”.

“Where a transfer does not meet the first condition, trustees and scheme managers would still need to consider whether other red or amber flags are present, so the overseas investment flag should not be needed as a broad-brush way of identifying potential risk,” he said.

“Similarly, while the red flag relating to member incentives is not being removed, this should be less problematic in practice where the transfer is to a reputable scheme and the first condition is met, as the red and amber flag checks should not need to be considered.”

Macnab also described the proposed new red flag where there is insufficient evidence of an employment link with a receiving occupational pension scheme as a “sensible way to close a gap” in the way the regulations currently operate.

Sackers partner, Adeline Chapman, noted that it had been widely expected that the red flag relating to incentives would be downgraded.

“But, with the government clearly conscious that incentives and scams often go hand-in-hand, it has decided to keep this flag firmly in place,” Chapman said.

“Instead, it has opted to broaden the circumstances in which trustees can go ahead with a transfer without engaging this extra level of due diligence.”

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