When undertaking due diligence, the primary concern is to protect the member from transferring to a pension connected to a scam. Failure to do so risks you becoming liable for any consequential loss, up to the entire value of the pension being transferred. For example, the potential liability for a £100,000 pension transfer could be £100,000.

You now have a powerful tool in the Conditions for Transfer regulations, as almost any receiving pension scheme will trigger an amber or red flag. It’s therefore unlikely you’ll identify a material pension scam risk where you’re forced to transfer without at least referring the member to pension scam guidance.

Provided you’re undertaking sufficient due diligence, you should be comfortable that you have adequately mitigated this risk. You’ve got this horse sized duck under control.

Now consider the vast majority of pension transfers with no material pension scam concerns which are still triggering amber or red flags. If you’re focussing on the one big risk then you might have decided to err on the side of caution.

You could be undertaking individual, detailed due diligence on every transfer and then referring to guidance or blocking if any flags are identified. You might be risking member detriment due to unnecessary delay, excessive due diligence or asking every member the same questions about a single receiving scheme.

You might be happy with this approach as any potential liability due to transfer delay will be far outweighed by any potential scam liability. You’ve decided this duck sized horse isn’t a concern.

You then have a single upheld complaint.

It has been determined that on this specific occasion your due diligence has been excessive or that your discretionary decision not to transfer was not properly made. The delay has caused the member a small financial loss due to market movement and there has been some distress and inconvenience.

Compensation has been awarded, but this is still a fraction of the potential compensation if the member had lost their pension due to inadequate due diligence.

You then undertake your root cause analysis and consider whether there were any other transfers in comparable circumstances. How many of these duck sized horses do you have?

You do not have the luxury of choosing whether to concentrate on one big risk or multiple smaller risks. If your pension scheme rules give you the obligation to consider discretionary transfers then you not only have to use this discretion to prevent transfers where there are material pension scam concerns, you must also not unduly delay genuine pension transfers.

You need to fight one horse sized duck and multiple duck sized horses.

Phil Warner AFPS, Head of Regulatory Development and Policy at Hargreaves Lansdown and PSIG Board Member