Almost 40% of pension transfer amber flags reported since the rules changed were issued by trustees because they involved overseas investments, according to a Freedom of Information (FOI) request by Quilter.
The Money and Pensions Service (Maps) data gathered by the wealth manager also reveals an acceleration in the number of Maps scam guidance sessions following newly established pension transfer rules introduced in November 2021.
Quilter said in a statement that pension transfers may be being “needlessly halted” because amber flags are being raised on “potentially low-risk transfers relating to overseas investments”.
Overseas investments were the most common cause of an ‘amber flag’ raised by the trustees of a transferring pension scheme since the rule change. This was given as the reason in 39% of recorded cases, resulting in at least 134 pension transfers being put on hold as of the end March 2022.
The newly established pension transfer rules require the trustees of a transferring pension scheme to raise an amber flag, which pauses a transfer, if they find that there are overseas investments included in the receiving scheme or other relevant issues. Before the transfer can be authorised, the member involved must prove they have received scam guidance from the Maps.
The wealth manager added that due to the very broad wording of the rules, some pension schemes are raising amber flags on overseas investments covering mainstream investments, such as funds from major asset managers that are investing globally.
Other reasons
The second most common cause of an amber flag was high risk or unregulated investments, which saw just 81 transfers (23%) paused in the same timeframe.
This was followed by unclear/high fees (55 or 16%), complex investment structure (45 or 13%), high volume to same schedule (15 or 4%), evidence provided not genuine (13 or 4%) and high volume with same financial structure (5 or 1%).
Quilter said that the figures “likely show just a small representation of a much wider issue, as Maps only keeps a record where the member is given the details of the amber flag by the transferring scheme”.
Due to the limited data, just 348 amber flags detail why it had been raised and why the guidance was necessary.
Since the introduction of the transfer rules, a total of 856 members have received scam guidance from the Maps as a result of an amber flag being raised by a trustee (to March 2022).
Month on month, the number of amber flags raised have increased significantly, leaping to 505 in March 2022 from just 20 guidance sessions in December 2021.
Change needed
Jon Greer, head of retirement policy at Quilter said: “In the 12 months to 31 November 2021, the Money and Pensions Service took just 482 calls and webchats in relation to pensions scams. Comparatively, in the four months that followed the introduction of the new pension rules, this figure nearly doubled to 856. This highlights the real disconnect between the number of people whose pension transfers were potentially being targeted by a scam, versus the number of people who were able to identify this and reach out for help.
“However, while it is positive to see such a noted increase in the number of people receiving scam guidance when it comes to their pension transfers – particularly where there is a genuine cause for concern – there remains a clear issue with transfers being halted where the trustees are finding an amber flag because the new scheme offers overseas investment included in the receiving scheme – as is the case in many UK registered pension schemes. There is a clear divergence between policy intention and the practical application of the law.
“Whilst it is early days the concern is that the number of referrals is increasing at a rapid rate. I fear a material proportion of people may be being required to take scam guidance sessions unnecessarily at a time when the ‘stronger nudge’ to pensions guidance comes into force. We hope the stronger nudge will result in an increase in the number of Pension Wise sessions being taken up, but what we don’t need is referrals to Maps scams guidance where the member’s experience is that it was an entirely pointless exercise.
“What’s more, the lack of information provided to Maps in terms of the reason for the amber flag being raised is concerning. If the information is not logged, and particularly whether there was an actual risk of a scam, it will be difficult to assess where scams are focusing and may provide an inaccurate picture of the effectiveness of the regulation.
“The drafting of the rules is not specific enough in its definition of overseas investments, which make no distinction between overseas investments that present a scam risk as opposed to those that don’t. This appears to be resulting in pension savers being forced to take Maps guidance before they are able to make a low-risk transfer.
“The DWP has previously stated that the amber flag regulations were not intended to encompass low risk transfers and said it was actively engaging with industry representatives and considering amending the regulations. While this is a welcome step, we hope that they address this well within the current 18-month review period it committed to at the commencement of the regulations.”
