Condition 1: Identify type of receiving scheme – certain types require no additional checks
No additional checks will be required where the receiving scheme is one of the following (and the trustees or scheme managers have confirmed that the scheme has been authorised or set up in accordance with the relevant requirements):
- public service pension scheme established by The Public Service Pensions Act 2013; or
- authorised master trust; or
- authorised collective money purchase scheme; or
- appropriately authorised and regulated insurer provided personal pension.
Conditions 2 & 3: Transfer to a UK occupational pension scheme (OPS) or a qualifying recognised overseas pension scheme (QROPS)
Transfers to an OPS or a QROPS that are not one of the ‘Condition 1’ type schemes may only occur where:
- the member has provided the evidence set out under legislation; and
- the trustees or managers have confirmed, on the basis of this evidence, that the transfer meets certain conditions – for an OPS, that there is an ‘employment link’ and for a QROPS establishing that there is either an ‘employment link’ or a ‘residency link’
(except where the member has evidence of a transfer to the same receiving scheme in the last 12 months).
Failure to provide such evidence means the member has no statutory right to transfer.
Condition 4: All other transfers – are ‘amber’ or ‘red’ flags present?
Those transfers to which Conditions 1-3 do not apply require trustees and managers to determine if ‘red flags’ or ‘amber flags’ apply. If they do not, the transfer may go ahead. It can also proceed where there are ‘amber flags’ but the member has obtained scams guidance from The Money and Pensions Service (MaPS) or where the member transferred to the same scheme in the last 12 months and on that occasion took MaPS scams guidance and can evidence this.
The introduction of these flags means that trustees and managers will now not only be able to prevent a transfer from taking place where the member does not provide the requested evidence but also where there is an ‘amber flag’ and the member has not taken MaPS scam guidance, or a ‘red flag’ is present.
A standard list of questions has been produced which can be used to obtain the necessary information from the member. These should be tailored to relevant circumstances, be proportionate but may be added to where necessary.
| Amber flags |
- high risk or unregulated investments
- unclear or high charges
- complicated or unorthodox investment structures
- overseas investments or overseas adviser
- high volume of transfers to single receiving scheme or involving single adviser/ firm.
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| Red flags |
Reasonable belief that:
- financial advice provided without appropriate regulatory permissions, or such firm /individual involved in recommendation to transfer
- unsolicited contact with member
- offer of incentives e.g. free pension review, early access or cashback
- pressure to complete transfer quickly
- failure of member to provide requested information to assess flags.
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The consultation closes on 10 June 2021 with a response expected within 12 weeks of the closing date.
The introduction of this new system will be a welcome addition to the existing armoury which the pensions industry has to help prevent the ‘menace’ of pension scams. Most pension transfers are legitimate and will be able to proceed with little to no additional checks required. However, the regulations should ‘empower’ trustees and scheme managers in the estimated 5% of cases which are a “cause for concern”.