Guest comment: The need for a workable transfer policy

Good governance requires that pension trustees adopt a transfer policy that enables them both to implement straightforward legal transfers on a timely basis and not to make transfer payments where there are suspicious circumstances without at least making rigorous checks.

Trustees may be exposed to complaints by transferring members to The Pensions Ombudsman if they either delay or fail to make ordinary transfers to a UK-registered pension scheme or make an imprudent transfer to a bogus arrangement, and in either case the member suffers loss. It is therefore really important that pension trustees adopt their own transfer policy, or at least have sight of and approve their scheme administrators' transfer policy.

The Occupational and Personal Pension Schemes (Conditions for Transfer) Regulations 2021 apply to all requests made on or after 30 November 2021 for a transfer payment.

Those regulations are designed to combat pensions scams and although they came into play over three months' ago, both pensions administrators and trustees are still trying to work out how to respond to them and this is still a current issue we are seeing.

In practice, the regulations mean that pension trustees are now required to obtain prescribed evidence from a transferring member of the member's employment link with the receiving scheme where a transfer to an occupational pension scheme is requested.

In addition to this, pension trustees must now obtain three forms of documentary evidence from a transferring member of the member's residency link with the receiving scheme where a transfer to an overseas pension scheme is requested.

Apart from this, pension trustees are not obliged in all transfers to obtain any more information than previously. Trustees must obtain details of the receiving pension scheme and warn transferring members about the possibility of pension scams. Trustees should send transferring members the materials regarding scams provided by The Pensions Regulator (TPR). Trustees should keep themselves informed of notifications on the Financial Conduct Authority's (FCA) website about potential scams. It is prudent for trustees to establish from the transferring member the reason for which the transfer is being made and the circumstances surrounding the transfer request.

Where a member is requesting a transfer from a defined benefit pension scheme to a defined contribution scheme, the trustees of the transferring scheme must satisfy themselves that the member has taken appropriate independent financial advice about the transfer before the transfer can be made (assuming that the transfer value is above the de minimis level of £30,000).

Apart from the employment link and the residency link for transfers to occupational or overseas schemes, pension trustees have discretion whether or not to request further information from the transferring member about the transfer. Trustees should ask for more information where there are circumstances which ought to put them on notice of a potential scam, or where there are inconsistencies or implausible statements made in the information provided. Transfers to overseas arrangements will generally give rise to the need for further enquiries. However, as TPR's guidance (which includes a transfer process decision tree) indicates, the new regulations are not intended to hinder the vast majority of pension transfers. Transfers requested to UK registered pension schemes supported by an FCA authorised IFA, without any sign of pressure or false claims being made to the member, need not be unduly delayed by further information requests.

Where pension trustees do make further information requests, a failure by the transferring member to supply the details requested would of itself be a 'red flag' under the new regulations, which would mean that the trustees would be statutorily prohibited from making the transfer payment.

Other examples of a 'red flag' having the same effect under the regulations, are an unauthorised financial adviser advising the member to transfer; unsolicited contact to the member about the transfer; time pressure being placed on the member to make the transfer; and an incentive being given to the member to transfer (other than from the member's employer or from the transferring scheme trustees).

It would be an 'amber flag' under the new regulations for the transferring member to provide some, but not all, of the information requested by the pension trustees, or for someone other than the transferring member (such as an adviser or representative) to provide the information. The effect of an 'amber flag' is that the pension trustees would be statutorily prohibited from making the transfer payment unless and until the trustees are satisfied that the member has taken pensions guidance about pension transfer scams from the government's Moneyhelper service.

Other examples of an 'amber flag' set out in the new regulations and having the same effect are high risk or unregulated investments under the receiving scheme; high or unclear fees being charged by the receiving scheme; unclear, complex or unorthodox investment structures in the receiving scheme; overseas investments in the receiving scheme; or a sharp or unusual rise in transfer requests to the same scheme or through the same adviser. Pension trustees will need to form their own judgment on whether particular circumstances satisfy any of those amber flags and trustees may need to take professional advice on this.

In order to process transfer requests efficiently and to minimise the risk of claims by disappointed scheme members, pension trustees should adopt a transfer policy which helps them to distinguish between straightforward cases where the transfer may proceed relatively smoothly and less conventional cases or suspicious circumstances where the trustees should investigate the proposed transfer thoroughly before it can proceed. Ultimately, trustees should agree the policy with their scheme administrator and which transfer requests need referring to them for further consideration.

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