This guide is for financial advisers only. It mustn’t be distributed to, or relied on by, customers. It is based on our understanding of legislation as at May 2023.
Due to a rise in the number and complexity of Pension Scams, legislation came into effect on 30 November 2021 that means the trustees or managers of registered pension schemes can prevent or delay a transfer initiated by a member of their pension scheme from that date if they see signs of it being a scam. This can affect a member’s statutory right to a transfer as the new legislation has introduced conditions that must be met before the transfer can proceed.
All statutory transfers will either need to be to one of the pension schemes set out under the First Condition or sufficient evidence will need to be provided under the Second Condition. If concerns are present during the Second Condition process the member will need to attend a mandatory guidance session with MoneyHelper. Where either of these conditions are not satisfied the member may lose their statutory right to a transfer to their requested receiving pension scheme.
It is important that sufficient due diligence is carried out when considering the requirements to meet the First or Second Condition. No single piece of evidence will definitely rule out the risk of pension scams. The decision should be made on a risk-based approach considering all the evidence from all the checks carried out.
Some schemes have been following the Code of Best Practice, published by the Pension Scams Industry Group, which has helped prevent many people from a likely loss of their pension fund. There is also transfer guidance on The Pensions Regulator's website, which includes a useful transfer decision tree in the Appendix.
Although it has no statutory basis, the Code can help you understand how to carry out proper analysis whilst also taking care of member vulnerability during the potentially longer transfer process.
The First Condition is where the member is transferring to:
- a public service pension scheme,
- an authorised Master Trust scheme (as per The Pensions Regulator's list of authorised master trusts), or
- an authorised collective money purchase scheme.
If the trustees or managers of the transferring pension scheme is satisfied beyond reasonable doubt that the receiving pension scheme is one of the above, then the transfer can go ahead.
If the receiving pension scheme doesn’t fall into one of the above categories, additional evidence will need to be requested by the trustees or managers of the transferring pension scheme to verify that the Second Condition is met by the receiving pension scheme. However, the Pensions Regulator (tPR) guidance states that the trustees or managers of pension schemes may keep details of ‘low-risk personal pension schemes’ on a ‘clean list’ so that they can allow transfers to those pension schemes without further checks. This is likely to be to personal pension providers that are well known to the transferring scheme and where previous frequent transfers have already been made to those providers. It’s up to trustees or managers of a pension scheme to make a risk-based decision on what transfers to personal pension schemes they will allow without further evidence.
To meet the Second Condition, the trustees or managers of the transferring pension scheme must request the following information from the member (unless the transfer is to a personal pension provider on their ‘clean list’):
- If the transfer is to an occupational pension scheme, evidence to show a clear employment link.*
- If the transfer is to a qualifying recognised overseas pension scheme (QROPS), evidence to establish overseas residency or an employment link, depending on the member’s employment status.*
- Further information from the member to assess if there are any red or amber flags. The information requested needs to be reasonable and in proportion to the level of risk believed to be present. The DWP have provided example questions to ask members to help trustees or managers of pension schemes with this.
*The information to be requested is set down in legislation. If the member has failed to respond after one month of a second request for information this may be treated as a red flag where the second request is sent at least one month after the first.
The information and evidence requested must come direct from the member even where the member has a financial adviser acting for them.
Red flags will apply in those circumstances where the suspicion of a pension scam will be strongest. Where red flags are identified, the trustees or managers of the transferring pension scheme must not proceed with the request for a statutory transfer. Examples of where red flags would apply are:
- the member has received financial advice from a firm or individual where that firm or individual doesn’t have the necessary regulatory permissions
- the transfer request is a result of cold-calling
- the member has been offered an incentive to make the transfer
- the member has felt pressured to make the transfer
Amber flags will apply in circumstances where there are some concerns about a pension scam, but where the position isn’t as clear as the red-flag scenarios.
If there are amber flags, the member must prove to the trustees or managers of the transferring pension scheme that they’ve obtained guidance from MoneyHelper and provide their unique reference number confirmed by MoneyHelper before the transfer can proceed. Where the member fails to provide evidence that they took guidance from MoneyHelper after being required to do so, it will become a red flag and the transfer will be stopped.
Examples of amber flags are (the list is not exhaustive):
- the receiving scheme includes unregulated or high-risk investments
- the fees under the receiving scheme are high or unclear
- the receiving scheme includes overseas investments
- the structure of investments included in the receiving scheme is unclear, complex or unorthodox
- there has been an unexpected rise in the volume of transfer requests to the same receiving scheme and/or involving the same adviser
Where the trustee or managers of the transferring pension scheme are satisfied that no red or amber flags apply, the transfer can proceed.
These conditions and checks could mean some delays in transfers being processed (or even not being allowed at all where a red flag is present) but your everyday transfer from one Personal Pension Scheme to another with a well-known provider is unlikely to be affected. The upside is that the trustees or managers of pension schemes will find it much easier to block suspicious-looking transfers and so protect their members.