FOI request shows ‘low-risk’ pension transfers caught by scam rules

New regulations, designed to identify potentially high-risk pension transfers, may be picking up high numbers of potentially low-risk transfers that simply relate to overseas investments. 

Ahead of a potential review of these rules, a freedom of information requires has sought to identify the reasons why transfers are flagged — which requires members need to seek guidance from the Money & Pension Service before proceeding with this transfer. 

The FoI request, by Quilter found there were almost 14,000 ‘amber flags’ raised on pension transfers between the December 2021, when this Pensions Safeguarding Guidances was introduced and March 2023. ‘Red flags’ indicate a more serious suspicious of fraud or a scam.

As the table below shows just over 5,000 of these ‘amber flags’ were raised for transfers to schemes with overseas investments, while a further 6,000 were for ‘unknown’ reasons. In contrast only 689 were for high risk or unregulated investments, 322 for complex investment structures and 168 for evidence provided that was not genuine. 

Quilter points out that since the introduction of these regulations, MaPS has faced increasing pressure on its services due to a large number of people requiring guidance appointments, many of which are potentially being conducted unnecessarily.

Quilter is calling for an urgent review of these regulations. It says while it is positive that the regulations mean many people have potentially been saved from fraudsters, the rules are not specific enough and need revising. As a result this lack of specificity, there has been an increasing number of pension savers being forced to take guidance before they are able to make even a low-risk transfer, which risks wasting vital resource. 

Quilter head of retirement policy Jon Greer says: “It has been 18 months since the pension transfer regulations were introduced and it is time the DWP sets out its next steps to ensure the bumps that have appeared are ironed out.

“Since Quilter’s initial FOI request to MaPS revealed a large number of potentially low risk transfers relating to overseas investments were being needlessly halted, we have continuously called on the DWP to act to put the issues right. While we are disappointed the review has not come sooner, we look forward to the report which is due from the DWP by the 30 May.”

Greer says there are three key issues that need to be addressed. “Firstly, Quilter asks that the DWP provides absolute clarity through an update to the very broad way in which the rules are worded, particularly in relation to its definition of overseas investments. The current drafting makes no distinction between overseas investments that prevent a scam risk as opposed to those that do not, and at present there is a clear divergence between policy intention and the practical application of the law. The DWP and TPR’s previous joint statement which attempted to resolve this did little to help, so it is vital the DWP goes one step further by amending the legislation to ensure consistency and reduce unnecessary delays to low-risk pension transfers.

“Secondly, Quilter asks that the DWP makes it an explicit legislative requirement for all pension schemes to provide clear and accurate information to customers on the reason an amber flag has been raised. The high percentage of ‘unknowns’ in the last 18 months amount to ineffective data collection which leaves a real gap in our understanding of how effective the rules have been. This gap also highlights the potential for increased customer disengagement and frustration if they are not clear on the reason as to why their pension transfer has been delayed. Putting the onus on pension schemes to provide clarity could significantly improve this.

“Finally, we’d like to see the level of resource available for MaPS guidance sessions bolstered to ensure customers are seen within a reasonable timeframe. We are aware at times that customers have had to wait a month before the earliest appointment is available. Not only will this help reduce pension transfer times and boost overall efficiency, but it would also mitigate the level of undue stress customers and advisers are experiencing.

“Pensions savers and their advisers have faced major delays and undue troubles in the past 18 months, and much of this can be attributed to the time taken to review the regulations. It is vital that real change is enacted to ensure a considerably improved process going forward.”