Pension trustees lack confidence in long-term efficacy of new transfer regulations

Less than a third (27 per cent) of pension scheme trustees said they were confident that new pension transfer regulations would reduce the number of scams, according to Barnett Waddingham.

The consultancy’s research found that 25 per cent believed they would have no impact in the long term.

The new regulations require trustees to assess whether pension transfer requests meet certain criteria and block those that display ‘red flags’.

More than three-quarters (76 per cent) of trustees stated that they were ready for the new regulations.

However, only 24 per cent said they had been familiarising themselves with the changes since they came into force in November 2021.

Barnett Waddingham’s research suggested there was a lack of consistency in knowledge and understanding across pension schemes and trustees, with around one in five saying they did not know where to start looking for relevant information.

All respondents issued concerns about at least one obstacle to putting the new transfer rules into effect.

More than a third (36 per cent) were concerned about a lack of understanding of the new process, 31 per cent were worried about having to use judgement in blocking or allowing transfers, and 30 per cent cited concerns with the complexity of implementing the new processes.

Furthermore, 28 per cent were worried about exposure to new risks, 27 per cent were concerned about short timescales and 23 per cent cited resourcing issues.

Professional trustees were most worried about using their judgement, with 42 per cent citing concerns.

Defined contribution scheme trustees were more confident that the new regulations would make a difference, with 14 per cent saying they were not confident they would make a difference compared to 30 per cent of defined benefit trustees and 43 per cent of hybrid scheme trustees.

“It will inevitably be disappointing to everyone with an interest in this area to see that nearly three-quarters of our respondents do not view the new regulations as likely to reduce the incidence of scams in the long term,” commented Barnett Waddingham partner, Liam Mayne.

“Previously trustees could be criticised for withholding a transfer where there had been concerns. The new guidance now provides support for doing so, albeit with little time to implement. However, what this research highlights is the need for further robust and unambiguous guidance so that scams can be effectively policed. The results show significant uncertainty – particularly around trustees’ roles and potential exposure to risk in policing pension scams.

“Although we can and do engage with trustees as their scheme administrators and advisers, ultimately, the buck stops with the trustees. Conflicting guidance, issued shortly before the regulations came into effect, has left trustees struggling to catch up. Although many trustees say that their schemes are ready for the changes, the confidence begins to waver when we take a deeper dive into the detailed findings.

“Trustees need to sit down with their advisers to ensure that transfer processes have been updated to reflect the new requirements so that the impact on legitimate member transfer requests is minimised. A lack of a proper structure for decision-making will leave trustees with an uphill struggle - and the first step will be to ensure that trustees have sought guidance on the requirements for their scheme.

“For those trustees which have partnered with an independent financial adviser firm, a key part of that step will be to engage with the adviser firm to understand how their recommendations fit into the new framework. Whilst it is early days, we anticipate that the burden on trustees will be much reduced where they partner with an adviser firm and would encourage all trustees to consider the benefits of this in light of the new requirements.”

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