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UK gov’t unveils stricter pension transfer rules to fight scams

It was ‘right to hand schemes greater power to protect members’


The UK’s Department for Work and Pension (DWP) has introduced a set of laws designed to prevent pension transfer scams.

Fraudsters often use pension freedoms and the statutory right to transfer to another scheme as a way to persuade consumers into moving their life savings into a bogus pension.

As a result, the DWP has set out that savers will not be able to invoke their right to transfer on every single occasion, but only if they are moving their pots into public service pension schemes, master trust schemes and/or collective money purchase schemes.

Trustees and scheme managers will be given the ability to prevent or pause a transfer request under a ‘red’ and ‘amber’ flag system.

AJ Bell explains that a red flag can be triggered if:

  • The member has not responded to a request of information on the suspicious transfer;
  • They have received financial advice from a firm without the appropriate permissions;
  • The transfer has been requested following an unsolicited from a person or firm the member had no relationship with; and/or,
  • The member has been pressured or felt pressured to transfer.

Similarly, an amber flag can be raised if:

  • There are high-risk or unregulated investments included in the receiving scheme;
  • The fees charged by the receiving scheme are unclear or high;
  • The proposed investment structures are complicated or unorthodox;
  • The receiving scheme includes overseas investments; and/or,
  • There has been a high volume of transfers to a single scheme or involving a single adviser or firm.

The changes will come into place from 30 November 2021.

‘Greater powers’ to protect members

Tom Selby, senior analyst at AJ Bell, said: “Unscrupulous scammers have ramped up their activity during the pandemic, spurred by the increased financial vulnerability experienced by millions of people during lockdown. Most of these scams now occur outside pensions, with fraudsters often targeting people aged 55 and over by encouraging them to shift their hard-earned retirement pot into a sham investment.

“Nonetheless pension-based scams do still exist, with the focus often on facilitating access before age 55. Given the terrible impact they have on victims – who often end up losing most, if not all, of their pension – the government is right to hand schemes greater power to protect members.

“From 30 November, where they have identified concerns, pension providers will be required to intervene and ask questions of the transferring member. Master trusts, CDC schemes and funded public sector schemes are deemed ‘safe destinations’ and will effectively be exempt from the requirements.

“This doesn’t mean pension providers will have to ask customers scam-related questions in relation to all non-safe destination transfers, only those where what they know of the receiving scheme gives them cause for concern.”

Becky O’Connor, head of pensions and savings at Interactive Investor, added: “The proposals could help to prevent pension transfer scams because they remove the automatic right to transfer a pension – something fraudsters have been exploiting.

“The government also took into account industry concerns that some of the proposed conditions set out in the consultation could result in an uneven playing field between Sipp providers and insurance company pension providers.

“The new system might slow down some pension transfers, although this should not be a significant risk once the regulations have bedded in. It is important that freedom to choose the right authorised and regulated provider is maintained for people who want to move their pension.”


Some things, however, have been left out of the legislation. For instance insurance providers have been left out of the safe destination list, and the Financial Conduct Authority (FCA)’s warning list has also been excluded.

AJ Bell’s Selby said: “Depending on the level of concern raised by the responses, this intervention could either be to block the transfer altogether or require the member to take scams guidance from Pension Wise.

“Crucially, it will be up to pension schemes to decide whether a transfer is suspicious or not. Whereas previously blocking a suspicious transfer came with the real risk of being sued, this legislation creates a specific legal framework within which members’ interests can be protected.

“Provided firms apply these rules sensibly and don’t delay matters by asking the risk questions on transfers where it is clear the risks are very low, they should add extra security for transferring members without impacting the vast majority of legitimate transfers.”

But Jon Greer, head of retirement policy at Quilter believes it is “illogical” to not include the FCA list.

“The regulations do not empower pension providers to raise a ‘red flag’ where they have a reasonable belief that customer has been contacted by an individual or organisation that is subject to a warning on the FCA’s warning list,” he said. “While the FCA’s warning list is by no means a comprehensive list of scammers, it is illogical to exclude it given it’s such an important tool in pension schemes arsenal to detect and prevent fraudulent transfers.

“Ultimately, the best course of action to ensure you do not fall foul of pensions scammers is to make sure the person or firm you are dealing with is regulated by the FCA; check any offer against the FCA’s Scam Smart website; speak to Money Helper or take regulated financial advice.

“Given a pension is often the largest asset people have other than their home, it is well worth proceeding with care and speaking to a qualified expert before taking any action.”

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