Article by Phil
The government has announced that it is issuing a consultation on plans to add more controls into pension transfer requests in order to reduce the risk of scams.
As we know, scams have been on the rise over the last few years and we have looked at many of the common scams to try to help to improve education.
But there has always been a disconnect between the Trustees of pension schemes responsibilities and the rights of the individual to transfer their pension. The governments intend to make this boundary clearer. A “flagging” system is being proposed, with “red” and “amber” warning signs introduced, under which Pension Trustees can delay transfers until they have a clearer understanding of the risks. Pension Wise will be an integral part of the proposed new system. There are three initial checks being proposed.
- That the transfer is going to a Safe Destination. This includes pension schemes run by insurance companies, master trusts, funded public sector schemes and defined benefit contribution schemes.
- An Employment Link where a transfer is being made to an occupational pension scheme.
- A Residence Link where a transfer is being made to another company.
As long as these initial checks are passed then the pension transfer can go ahead. But where one of these tests is not passed, the Pension Trustee will then be obliged to do further checks by involving Pension Wise who will be tasked with speaking to the individual to determine whether there is evidence of a scam.
Although some firms believe that this will delay some transfers to the detriment of the customer, I think we believe that these simple checks would be very helpful.
Let’s wait and see what other concerns the consultation throws up. These changes are unlikely to happen overnight.
Interestingly, research from XPS Pension group shows straight away that the proposed checks might not be as robust as they seem. XPS have looked at over 2,000 transfers since 2018 and found that of the 1,100 cases that it had flagged as being potential scam risks, 69% would have passed the initial test proposed and therefore would not have been flagged under the proposed new system. That seems like a worryingly high number of potential scam cases that could still slip through the net.
Although of the almost 500 cases identified as being at a high risk of being scams, that 37% would have passed the initial tests, which means that 63% would have been flagged. Just over two thirds.
The system is clearly not perfect, but it’s a start and screening out two thirds of high-risk transfer cases might not be a bad start.
