Three years on from the introduction of the pension transfer regulations, major issues continue to plague pensions savers, says Quilter.
A Freedom of Information request from the Money and Pensions Service gathered by Quilter, has shown that a large number of pension transfers have been “needlessly interrupted”.
A total of 27,900, or four out of five, amber flags raised have either been for an unknown reason or for a potentially low risk transfer relating to overseas investments.
Of the 33,917 MoneyHelper Pension Safeguarding Guidance sessions conducted since the pension transfer regulations were introduced, almost half (15,677) were conducted with an attendee who was unaware as to why an amber flag had been raised on their pension transfer. A further 12,223 were due to a flag being raised on potentially low-risk transfers relating to overseas investments.
Despite the Department for Work and Pensions acknowledging that the regulation wording in relation to overseas investments was causing delays and issues for many pension savers, Quilter says little effort has been made to resolve the issues.
Additionally, while the pension transfer regulations will have helped prevent some pension savers from falling victim to scams, Quilter says many have also been subject to “further injustice at the hands of HMRC” in the application of the pension tax system. In certain circumstances, individuals or the pension scheme can face unauthorised payment charges of up to 55%, plus interest.
The wealth manager is calling upon the DWP to ensure changes are implemented swiftly to improve the pension transfer experience. It is also urging HMRC to review its rules and for Parliament to change the relevant tax law to prevent more people being disadvantaged.
Jon Greer, head of retirement policy at Quilter, said: “Change is well overdue. For three years now, industry has been repeatedly highlighting the issues that pension savers are coming up against as a result of the unnecessary points of friction within the DWP’s regulations. A growing number of people have been negatively impacted as their pension transfers have been needlessly halted for what is often no real reason, yet nothing has been done to help them.
“The DWP has claimed it is working to consider whether the rules could be improved, but with no indication of a timeline, it seems more and more people will face undue disruption. As a matter of urgency, the DWP must act to resolve the current divergence between policy intention and the practical application of the law when it comes to the overseas investments wording to provide clarity on the distinction between those investments that present a scam risk versus those that do not.”
Greer said pension schemes must also give accurate and clear information to customers prior to the Money and Pensions Service sessions around why an amber flag was raised.
He added: “The potential that thousands of people have been saved from scams is the silver lining. However, those who are less fortunate and have been the victim of pension or investment fraud could face not only the damages of the fraud itself, but also punitive tax. HMRC and Parliament must enact change to ensure those who have been the victim of fraud do not face further devastating losses simply due to the way in which tax laws are applied. Ultimately, pension savers have suffered needless delays for three years, and it is time the DWP put a stop to it.”
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