Pension transfers are being held up unnecessarily by providers who are raising flags for transfers that have no real scam risks, says PensionBee.
Industry data from XPS Group shows that over the last few years there has been a significant increase in the percentage of red and amber warning flags raised, with 94% of cases reviewed raising at least one scam warning flag.
However, PensionBee’s own analysis of government data suggests that there is no clear correlation between the number of flags raised and the number of scams.
Government figures published in 2023, which analysed a total of 290,000 pension transfers found only 2,700 (1%) had a scam flag raised. Of the 2,400 that had an amber flag raised, the overwhelming majority (96%) went on to complete. Among those that did not complete, the main reason was because not all of the information was provided, rather than evidence of a scam being found.
The same government figures showed that just 300 of the 290,000 transfers resulted in a red flag and the most common reasons given for red flags were the member failing to provide the required information (47%) and the member not providing evidence of receiving MoneyHelper Guidance (26%).
PensionBee said the Conditions for Transfers Regulations 2021 legislation does not appear to have had a marked impact on the number of pension fraud cases, with the number of reports increasing between 2022 and 2023.
Becky O’Connor, director of public affairs at PensionBee, said: “The anti-scam legislation as drafted has been left open to misinterpretation and misapplication, hampering the proper functioning of the pension transfer market to the detriment of consumers, in far too many cases.
“The DWP’s own data indicates that a sledgehammer has been used to crack a nut, as the vast majority of red and amber flags that occur are not raised because of genuine scam risk but for other activity that on balance, is unsuspicious, such as people not providing the correct information or the mere presence of overseas investment in the receiving scheme where this is generally the norm.”
O’Connor said the number of flags raised should only be considered meaningful alongside data on the actual number of pension transfer scams that take place over a time period as a way to demonstrate how effective the system is at identifying scam attempts.
O’Connor added: “Recent years have shown no correlation between the number of flags raised and the number of actual transfer scams occurring. This suggests the current flag system does not effectively identify scams.
“Some providers feel they are being forced to apply flags in inappropriate circumstances. Other providers seeking to slow or stop transfers out choose to slavishly apply the rules and flag the greater bulk of their transfers out. These practices waste the resources of providers and the time and goodwill of savers trying to do something positive with their pensions.
“It is now time to make some much-needed amendments to tackle the huge inefficiencies, unnecessary worries and consumer detriment created by false flags.”
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