The Society of Pension Professionals has warned that government measures designed to protect savers from pension scams could be undermined by legislative loopholes and are therefore unlikely to work as intended in practice.
In the SPP’s response to the current Department for Work and Pensions consultation on the subject of pension transfer regulations, the trade body strongly endorsed the creation of a broader “Condition 1” gateway. This change would in theory allow trustees to fast-track transfers to “reputable schemes,” reduce unnecessary delays for members, and ease the administrative strain on statutory guidance services.
However, the SPP also went on to highlight what it perceived as a critical loophole in the proposed “employment-link” red flag meant to curb fraudulent Small Self-Administered Scheme transfers.
Under current rules, if a member provides only partial evidence of an employment link, the transfer must be treated as an amber flag rather than a red flag due to the existing legal definition of a “substantive response”. As a result, scammers or poorly advised members will still be able to bypass the red flag and force transfers through after attending a mandatory guidance appointment.
The SPP is recommending that the DWP amend the definition of a “substantive response” specifically for SSAS arrangements, or to adopt an alternative principle-based framework that focuses on whether a scheme is being used to facilitate a scam.
Faye Jarvis, an SPP Council member, says: “While the SPP strongly welcomes the introduction of a subjective ‘reputable scheme’ gateway, which should help to significantly accelerate low-risk pension transfers, clear regulatory guidance will be vital to ensuring this works smoothly in practice.
“At the same time, we are seriously concerned that the new employment-link red flag is fundamentally flawed. In practice, members often cannot provide complete documentation for a range of legitimate reasons, and under the current definition of a ‘substantive response,’ partial evidence will still allow high-risk transfers to proceed as amber flags.”
The SPP also recommend that the proposed 12-month exemption for repeat MoneyHelper appointments be limited to transfers to the same receiving scheme.