Pensions could be switched more rapidly under government proposals to amend the conditions for transfer regulations.
The Department of Work and Pensions is consulting on a range of changes, which include removing some of the ‘warning’ flags that are currently automatically triggered on many transfer cases.
This consultation is designed to provide more effective measures against pension scams, while also reducing friction in the transfer process, helping members consolidate and switch savings more easily, in a bid to boost retirement outcomes
One key change proposed is removing the ‘amber’ flag that is triggered when the receiving scheme involves overseas investments. A number of pensions providers have said that this flag warning appears with the majority of legitimate pension transfers and can slow down the transfer process.
If red or amber flags are triggered, trustees can block transfer requests and the member may have to attend an appointment with the Government’s Money and Pensions service (MaPS), before the transfer can continue.
These proposals are part of a wider packages of reforms that are also seeking to reduce fraud cases with small self administered schemes.
Many retail pension providers have been lobbying for a change in these rules to speed up the transfer process. However this has raised fears that this could result in more money being transferred from trust based occupational schemes into retail pensions, which may have higher charges.
However a number of providers have said the current rules, designs to clamp down on scams are not always operating successfully.
PensionBee chief business officer Lisa Picardo described the DWP’s consultation as a “meaningful step in the right direction”.
She points out that the company freedom of information requisitions from the Money and Pensions Services found that this ‘overseas investment’ issue accounted for a third of all amber flags since 2021.
She adds: “The proposal to remove the ‘overseas investments’ Amber flag in particular is long overdue, and will directly benefit savers who have been sent through unnecessary safeguarding hoops for years now. “
But she says that the proposed regulations will require ceding schemes and trustees to consider whether a receiving scheme is “reputable” as part of their due diligence. She says: “Whilst well-intentioned (to support effective decision‑making and provide protections for members), care needs to be taken so that this isn’t used by some as a back-door way of needlessly causing friction and once again putting up barriers.
“Amending the Transfer Regulations to reduce friction is clearly an important piece of the pension transfer puzzle.
“But, another is the UK’s six-month statutory transfer deadline, which has not been updated since the 1990s. With the slowest providers still taking more than 90 days on average to release savers’ money, we hope this consultation marks the beginning of a broader reset of the pension transfer system, not the end of it. Whilst consumer protection is to be respected, so too must a consumer’s right to move their retirement savings.”
