Department for Work and Pensions (DWP) review has identified room for improvement in pension transfers as varying approaches complicate regulations.
The DWP found that 94 per cent of transfers went through with further action but the diverse approaches taken by various schemes highlight a need for unified regulation.
Red or amber flags were triggered during transfers in just 1 per cent of cases. The remaining 5 per cent of transfers were made in violation of the rules at the discretion of the transferor.
Around 2,400 transfers out of the 290,000 transfers that the DWP examined received an amber signal. The inclusion of foreign investments in the receiving scheme was the most frequent justification.
Nearly 300 red flags were raised in total. In over half or 47 per cent of the instances, this was due to the customer’s failure to give accurate information.
Additionally, in a further quarter or 26 per cent, the customer’s failure to submit proof of attendance at a MoneyHelper appointment was the reason.
DWP says enhancing efficiency and transparency in pension transfers requires standardisation and better communication.
AJ Bell head of policy development Rachel Vahey says: “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 per cent 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.
“Most pension schemes include some type of overseas investments, so it’s illogical to have this as a separate reason to raise an amber flag. Reviewing this condition could get rid of these amber flags for a significant number of pension customers. Likewise we need a clearer definition of what an incentive is, so all schemes are on the same page, and no scheme raises a red flag and stops a transfer unnecessarily.
“Wrapped-up in the review are a couple of intriguing statistics. Data from the industry shows that over a million pension policies were moved in 2022. It reveals the vast scale of the pension consolidation market in the UK, as savers shop around for lower charges, better service and more investment choice.
“For anyone that isn’t on top of their pension paperwork, this is a good reminder that many people have multiple pension pots and could benefit from bringing them together in a modern pension account that is easy to manage and doesn’t cost them a fortune.
“Similarly, the report highlighted a growing waiting list for safeguarding calls with the government’s free Moneyhelper service. Having to wait for six weeks to get a MoneyHelper safeguarding appointment is simply too long. Pension customers could be losing out on lower charges and investment opportunities, not to mention the frustration of having to wait so long just to move your own money.
“Although guidance can be helpful in highlighting issues, pension customers that have taken the time to review their pensions and select a new provider want the transfer process to run quickly and smoothly. Delays only frustrate and anger customers, and in some cases that could mean they’re actually less likely to make a calm and level-headed decision.
“The report card from this review reads ‘working OK but could do better’. It’s up to the DWP now to work with the industry to put right these problems.”