The Department for Work and Pensions (DWP) and The Pensions Regulator (TPR) have stepped in to provide clarity around the pension transfer rules that came into force in November 2021.
The move follows accusations by platform PensionBee which recently named and shamed a number of “rogue” providers which it claimed were using loopholes in the regulation to “block and delay consumers from moving their pensions”.
PensionBee chief executive Romi Savova explained that the providers were using a very broad interpretation of ‘incentives’ provided by the receiving scheme as a reason to halt a transfer. This included the firm’s £50 ($62, €58) refer-a-friend programme.
As a result, the DWP and TPR said that the Occupational and Personal Pension Schemes (Conditions for Transfer) Regulations 2021 were designed to capture the practices used by scammers and to allow trustees to refuse to make a transfer where they believe a member is falling victim to a scam.
But they reiterated that “most pension transfers are legitimate and can proceed with minimum intervention”.
“The legislation should have no impact on the process for transfers that, prior to the introduction of the regulations, would have caused no concern. The government remains committed to individuals being able to make decisions about their pension pots but wants to enable trustees to play their part in preventing members from being scammed,” they added.
‘Put on notice’
But for those concerned about applying the rules where overseas investments or small-scale incentives feature in a transfer, the TPR has updated its guidance, and the DWP will take this into consideration in its review of the regulations.
“Trustees should take a risk-based approach to their decision-making. Where a transfer causes no concern, which should be the vast majority of cases, they should proceed with no further action required,” the two bodies said.
“Where trustees believe the regulations mean there is no statutory right to transfer but they have concluded following due diligence that the transfer is at low risk of a scam, trustees can grant a ‘discretionary transfer’ where scheme rules allow.”
PensionBee’s Savova said she was “heartened” to see the regulator and government provide clarity on the issue.
“Pension providers have been put on notice: routine pension transfers can and should go ahead promptly,” she continued.
“It now remains to be seen whether – despite the explicit and unambiguous announcement that the legislation should have no impact on the process for transfers that, prior to the introduction of the regulations, would have caused no concern – the handful of pension providers intent on delaying transfers will continue to frustrate consumers from moving their own money.
“Should these practices continue, we would call on regulators to end the pension transfer lottery once and for all: by legislating for a pension switch guarantee.”
But Jon Greer, head of retirement policy at Quilter, is somewhat sceptical the clarification from the DWP and TPR will fix the issues at hand, as there seems to be a “mismatch” between what the two bodies say and the legal advice providers are receiving.
“Recent Freedom of Information data from the Money and Pensions Service (Maps) gathered by Quilter revealed that amber flags were being raised on potentially low-risk transfers relating to overseas investments due to the very broad way in which the rules are currently worded,” he said.
“This ongoing issue highlights a clear divergence between policy intention and the practical application of the law.
“We empathise with the sentiment of the announcement, but trustees may still feel as though they are left in a difficult position given the letter of the law is telling them to something rather different.
“There remains a fundamental mismatch of position between the DWP and TPR and some occupational pension schemes and their legal advisers, and this is unlikely to be resolved by the announcement.
“While there remains a long road ahead, it is positive to hear that work on the review is now underway. As it stands, the drafting of the rules is not specific enough in a few areas, for example its definition of overseas investments, which make no distinction between overseas investments that prevent a scam risk as opposed to those that don’t.
“If this goes unchanged, it will result in more and more pension savers being forced to take Maps guidance before they are able to make a low-risk transfer. As such, we hope that this issue is addressed well within the 18-month review period previously committed to.”