New anti-scam rules have come into force today to protect pension savers, following growing concern around the number of people losing their savings to fraudsters.
Under the new rules, pension providers will have more power to block pension transfers outright where ‘red flags’ are raised. Up until now, schemes could not refuse to carry out a transfer where the member was deemed to have a statutory right to do so.
Furthermore, where ‘amber flags’ point to potentially suspicious activity, providers will need to direct scheme members to Pension Wise for guidance before transferring.
The Government has set out in very broad terms when amber flags could be used, but experts cautioned that providers will need to use ‘common sense’ when interpreting the rules, warning that overzealous blocking of legitimate transfers could cause consumer harm and lead to a barrage of Ombudsman complaints.
Tom Selby, head of retirement policy at AJ Bell, said: “New rules coming into force today provide savers with an extra layer of protection from the scourge of pension scams.
“If applied proportionately, they will hand more power to providers in blocking suspicious transfers while allowing the vast majority of legitimate transfers to go through as normal.
“The one lingering concern is the extent to which all providers will apply common sense when interpreting the rules – specifically around the so-called ‘amber flag’ warnings.
“Where an amber flag warning is raised, this indicates the provider believes the scheme the member wants to move their retirement pot to may be a scam. The member will then be required to obtain guidance from Pension Wise before transferring.
“Anyone who goes through this process will have their transfer slowed down significantly, which is why the Government has avoided being overly specific when setting out when an amber flag should be raised.”
As an example, Selby said the amber flag rules state overseas investments could be indicators of a scam but given the majority of defined contribution schemes allow overseas investments, this should not be deemed a cause in itself to alarm providers.
Selby added: “It would be ludicrous in the extreme to force every person who transfers and intends to invest their retirement pot in a non-UK company like Amazon or Tesla to take anti-scam guidance before doing so. The point of the new rules is to give providers more power to stop – or at least stall – transfers where their due diligence raises legitimate concerns.”
Selby says that providers must use their common sense when implementing the new rules, warning that while protecting members from scams is important, people will not tolerate “unjustified delays”.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, echoed the sentiment: “These regulations are a powerful tool in the fight against scammers with schemes given the ability to stop transfers or refer members for guidance if they have concerns.
“Keeping due diligence processes robust and proportionate will be key in ensuring these rules work as well as they should. If schemes make excessive or unnecessary checks then there’s a chance MoneyHelper could be swamped and transfers that should otherwise have been straightforward could be delayed. The ability to undertake provider level due diligence and to then make a discretionary transfer if providers have no concerns is what will allow the 95% of genuine transfers to proceed without delay.
“To be as well prepared as possible, providers and schemes will have reviewed their processes to make sure they stand up to scrutiny. For instance, many providers who already operated a “green list” of schemes they are happy to transfer to, will have reviewed them to make sure it is robust. Member questionnaires will have been checked to make sure the questions deliver the information needed to make an informed decision.
“Most pension transfers go through with no issue and this should continue to be the case with these new regulations bringing an extra layer of protection against scams.”
