The Department for Work and Pensions has found that 94% of completed pension transfers went through with no issues and no raised flags.
In May 2021, the DWP launched a public consultation “Pension Scams: Empowering Trustees and Protecting Members“, following the introduction of the Pension Schemes Act 2021. The consultation was designed to review the operation, appropriateness and effectiveness of the regulations, including whether there was a need to amend the red and amber flags.
In a report published on Wednesday, the DWP said only 1% of pension transfers were completed with a red or amber flag during its 18 month review, while 94% were completed with no flags. The remaining 5% were completed outside of the regulations.
The most common reason for an amber flag was due to overseas investment being offered by the scheme (57%), followed by the inclusion of high risk or unregulated investments (15%). The most common reason a transfer was completely stopped was because the customer had not provided the right information.
Rachel Vahey, head of policy development at AJ Bell, said: “One pension scam is still one too many, and these DWP regulations are an important step in stopping bogus pension transfers. But the DWP has to strike the right balance between protecting customers and making sure the majority of pension transfers go through without unfair delays.
“The headline that flags are raised in only 1% of cases muddies the truth that the regulations have introduced some unnecessary delays and barriers to a number of perfectly legitimate pension transfers. Pension schemes are taking vastly different approaches to enforcing the regulations, with some much more likely to raise flags because they’re following the rules to the letter, even when it is clear the transfer is a valid one.
“The industry needs more clarity and consistency in order to iron-out some of these issues and avoid tangling pension savers up in red tape.”
Vahey called the decision to include overseas investments as reason to raise an amber flag “illogical” and said reviewing this condition could get rid of amber flags for a significant number of pension customers.
According to data from Origo, the total number of transfers completed increased to around 1 million in 2022 from 750,000 in 2020. However, the average waiting time for safeguarding appointments with the Money and Pension Service has increased from two weeks to six.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, commented: “These rules aim to give pension providers greater power to protect people’s life savings from scammers and are not intended to add any extra red tape where a genuine transfer request is made.
“However, there have been reports that transfers are being delayed due to the presence of amber flags even when the provider has no concerns. An example would be the presence of overseas investments. Redefining or removing this amber flag could really improve the member’s transfer experience.
“Similarly, the flag around incentives to transfer could also be reviewed so that it covers “inappropriate incentives” only. Including an overarching provision which allows providers to override flags if after doing their due diligence they have decided there are no concerns would provide an additional safeguard against unnecessary delay.”
Morrissey added that while the rules help to safeguard members from the ongoing threat of scammers, the pensions industry must work together to ensure the rules work “as well as possible to give members the best possible experience.”
Jamie Clark, pensions specialist at Quilter said the rules were leading to consumers “needlessly suffering delays” and “the potential for increased consumer disengagement”.
He said: “The DWP should make it an explicit legislative requirement for all pension schemes to provide clear and accurate information to customers on the reason an amber flag has been raised. The data shows that the reason for 43% of amber flags is ‘unknown to the attendee’ when consumers attended a Money and Pension Advice Service appointment. This amounts to ineffective data collection which leaves a real gap in understanding of how effective the rules have been.
“This gap also highlights the potential for increased consumer disengagement and frustration if they are not clear on the reason as to why their pension transfer has been delayed. Putting the onus on pension schemes to provide clarity could significantly improve this.
“These rules are necessary and welcome, but the failure of the review to address these points of unnecessary friction is disappointing. In particular, there is a clear divergence between policy intention and the practical application of the law when it comes to the overseas investments wording and this needs to be amended as consumers are needlessly suffering delays.”
