Low-risk pension transfers are being needlessly halted due to a weakness in the rules, according to new data from the Money and Pension Services.
A freedom of information request from Quilter found an acceleration in the number of MaPS scam guidance sessions following new pension transfer rules introduced in November 2021 and indicates amber flags are being raised on potentially low-risk transfers relating to overseas investments.
According to the latest MaPS statistics, overseas investments were the most prevalent reason for a transferring pension scheme’s trustees to raise an “amber flag.” This was provided as a cause in nearly 40 per cent of documented cases, resulting in at least 134 pension transfers being placed on hold until the end of March 2022.
MaPS only keeps a record where the member is provided with the specifics of the amber flag by the transferring scheme, the figures are likely merely a minor representative of a much larger issue. Due to the inadequate data, only 348 amber flags explain why it was raised and why counselling was required.
The second most common cause was high risk or unregulated investments, which saw just 81 transfers paused in the same timeframe.
The new pension transfer regulations, which went into effect in November 2021, compel transferring pension trustees to raise an amber flag, which halts the transfer if they discover offshore interests in the recipient scheme or other related difficulties. The member must show that they got fraudulent guidance from the MaPS after the transfer was flagged before the transfer may be approved.
A total of 856 members have received fraud advice from the Money and Pensions Service as a result of an amber flag being raised by a trustee since the new transfer restrictions were introduced (to March 2022). Month after month, the number of amber flags raised has climbed dramatically, jumping from 20 in December 2021 to 505 in March 2022.
The Department of Work and Pensions told the parliamentary joint committee on statutory instruments that authorities had been notified of a potential problem with too many pension transfers receiving an amber flag.
Quilter head of retirement Jon Greer says: “In the 12 months to 31 November 2021, the Money and Pensions Service took just 482 calls and webchats in relation to pensions scams. Comparatively, in the four months that followed the introduction of the new pension rules, this figure nearly doubled to 856. This highlights the real disconnect between the number of people whose pension transfers were potentially being targeted by a scam, versus the number of people who were able to identify this and reach out for help.
“However, while it is positive to see such a noted increase in the number of people receiving scam guidance when it comes to their pension transfers – particularly where there is a genuine cause for concern – there remains a clear issue with transfers being halted where the trustees are finding an amber flag because the new scheme offers overseas investment included in the receiving scheme – as is the case in many UK registered pension schemes. There is a clear divergence between policy intention and the practical application of the law.
“Whilst it is early days the concern is that the number of referrals is increasing at a rapid rate. I fear a material proportion of people may be being required to take scam guidance sessions unnecessarily at a time when the ‘stronger nudge’ to pensions guidance comes into force. We hope the stronger nudge will result in an increase in the number of Pension Wise sessions being taken up, but what we don’t need is referrals to MaPS scams guidance where the member’s experience is that it was an entirely pointless exercise.
“What’s more, the lack of information provided to MaPS in terms of the reason for the amber flag being raised is concerning. If the information is not logged, and particularly whether there was an actual risk of a scam, it will be difficult to assess where scams are focusing and may provide an inaccurate picture of the effectiveness of the regulation.
“The drafting of the rules is not specific enough in its definition of overseas investments, which make no distinction between overseas investments that present a scam risk as opposed to those that don’t. This appears to be resulting in pension savers being forced to take MaPS guidance before they are able to make a low-risk transfer. The DWP has previously stated that the amber flag regulations were not intended to encompass low-risk transfers and said it was actively engaging with industry representatives and considering amending the regulations.
“While this is a welcome step, we hope that they address this well within the current 18-month review period it committed to at the commencement of the regulations.”