DWP confirms introduction of regulations to block scam pension transfers

New measures to help protect pension savers against the threat of scam transfers will come into force on 30 November, the government has confirmed.

The regulations will mean that suspicious transfers can be blocked by pension scheme trustees and managers where there are ‘tell-tale’ signs of fraud or methods frequently used by scammers.

Under the system, red flags will prevent a transfer request, whilst amber flags will pause a transfer until the member can prove they have taken specific scam guidance from the Money and Pensions Service (Maps).

Commenting on the news, Pensions Minister, Guy Opperman, said: “We are tackling the scourge of pension scams in practical terms to safeguard pensioners’ hard-earned savings.

“These measures will provide better protection for savers.”

The Department for Work and Pensions (DWP) launched a consultation on the proposals earlier this year, outlining the conditions that would allow a transfer to proceed without incident.

Industry experts raised concerns over the potential for false negatives and positives under the proposed conditions, however, with the consultation receiving a mixed industry response.

In light of industry feedback, the government's response to the consultation has now confirmed that whilst it will retain the first condition, it will remove the reference to a pension scheme operated by an insurer that is registered by the Financial Conduct Authority and authorised by the Prudential Regulatory Authority (PRA).

It explained that this will continue to provide a guarantee of being able to exercise the statutory right to transfer, whilst also serving to “level the playing field” for all FCA-regulated schemes offering similar products.

The DWP also acknowledged that there was “potential for misinterpretation” in the proposed structure of the second, third and fourth conditions, with some trustees and schemes managers thinking that they had to go through and apply each condition in sequence, thereby slowing down the transfer process.

To address this, DWP confirmed that it will remove each standalone condition and merge them into one new condition, allowing for a "holistic" consideration of the employment and residency links with the red and amber flags.

DWP has also “honed and tightened” the use of terms in the flags and the related definitions, with further guidance from The Pensions Regulator also published to support the practical application of the regulations.

Master trusts, collective defined contribution schemes and funded public sector schemes will be classes as 'safe destinations' and effectively exempt from the new measures.

Commenting on the introduction of the new measures, The Pensions Ombudsman, Anthony Arter, said: “Having witnessed the real damage that pension scams can inflict on an individual’s retirement I welcome the new transfer regulations which look to make transfers safer.

"I am optimistic that over time statutory clarity regarding the level of due diligence expected of trustees and additional information and guidance to be given where appropriate to those planning to transfer, will help combat pension scams, and also reduce the number of transfer complaints to The Pensions Ombudsman.

“Complaints received after the regulations come into effect, will be investigated within the framework of those regulations (and industry guidance) on a case by case basis, having regard to the facts and evidence in each case”.

Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, also highlighted the measures as a "welcome step forward in protecting scheme members by giving schemes the power to stop transfers or refer members for guidance if they have any suspicions".

“Scammers rob people of their hard-earned retirement savings and for too long schemes have been powerless to stop them," she said.

The government has committed to reviewing the regulations within 18 months of them coming into force to ensure they remain effective.

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