News for trust-based schemes
In May 2021, the DWP published its ‘Pensions scams: empowering trustees and protecting members consultation’ on draft regulations to tackle the growing risk of scams when transferring between pension schemes.
Current legislation gives trustees little scope to refuse a member’s request to transfer, even if they have concerns that the receiving scheme displays characteristics of a scam. With the aim of better protecting scheme members from scams, the draft regulations introduce new conditions to be met before trustees can process a transfer request. Where a proposed transfer does not meet at least one condition, the statutory right to transfer falls away.
Alternatively, instead of satisfying conditions two or three, the member can provide evidence of a transfer to the same receiving scheme in the last 12 months. Where satisfactory evidence is provided, the transfer proceeds.
If the transfer does not meet one of the first three conditions, trustees will need to decide if a fourth condition is satisfied, which involves assessing whether any ‘red flags’ or ‘amber flags’ are present.
Trustees can prevent a statutory transfer if there are any red flags such as the member being offered incentives to transfer, unsolicited contact from an unknown party or they have received financial advice from a firm or individual without the appropriate regulatory permissions. A member’s refusal to provide the trustees with information in relation to the transfer also constitutes a red flag.
If there are any amber flags (for example high risk, unregulated investments or high fees in the receiving scheme or the proposed investment structures are complicated or unorthodox), the transfer cannot proceed until the member provides evidence of having taken scams guidance from MaPS.
To help ensure that due diligence on transfer requests remains proportionate, the DWP has developed a set of standard questions for trustees and managers to use.
The consultation closed in June and the intention is for the regulations to be in place by Autumn 2021.
Trustees will want to ensure they follow good governance and audit procedures to identify potential scams and also to protect themselves should transfers go wrong or members complain about the trustees’ approach. They should review their administrator or pension providers' processes to ensure they meet the new requirements.