I’ve heard a few different reactions to the November 2021 Conditions for Transfers Regulations. Most believe that the regulations are a positive development, giving trustees and providers a new tool to help combat pension scams, while others view the same regs as an unwelcome nuisance, bringing changes to procedures and introducing extra cost. Some fear that complying with the regulations will slow up transfers and create friction in an already challenging process. Others point out a couple of technical issues with the wording of some clauses.

Of course, all these points are valid to some extent, but what we need is balance based on risk assessment.   For the many schemes that already carry out checks before making transfers (especially by following the PSIG Code), the regulations will mean very little change, but for the first time, schemes that uncover red flag scam signs can confidently refuse to pay. Finding amber flags means directing members to MoneyHelper guidance before making a transfer. These tools were not available until now.

In the recent past, finding scam signs in a transfer created a dilemma. Paying to a possible scam could result in the loss of a member’s pension savings, or a claim for compensation, while refusing to pay could lead to a complaint, confrontation, and compensation, as well as the time and costs dealing with the fallout. Hard to see any upside really.

Some providers felt that you were damned if you do, and damned if you don’t, so chose not to bother checking for scams before paying transfers. The strength of the statutory right to transfer, reinforced by the infamous Hughes case, made scams checking hazardous.

There are also varying views on the true extent of scams, but without reliable reporting and MI, it is impossible to really understand the size of the problem. PSIG’s view, based on earlier sampling, is that roughly 5% of transfers are likely to be scams, so DWP used this 5% measure as the focus for the regulations. 5% seems like a very small proportion, but with over £25bn transferring each year, the value at risk is high. 

The regulations will be successful if we can stop or at least reduce that dangerous 5%. This is where industry attention should be focused. 

Conversely, we don’t want to over-engineer the process for the 95% of transfers that are less likely to be scams. Straight through and electronic transfers rely on speed. Personal pension providers are benchmarked on speed of transfer. Regulators, advisers and customers want speed.  We need to keep the wheels turning and ensure that straightforward transfers can be completed quickly. This controls our costs and keeps our members happy. Telling the difference between “good” and “bad” transfers is important, which is where the flags come in. It’s about balance and proportion.

I wish it were simple, but we have two different problems with transfers, and they are hard to tell apart. There are transfers that are scams and transfers that are unsuitable for the individual, whether though bad advice or poor judgement. Sadly, the latter outnumber the former, but both have bad outcomes, and they tend to be conflated in people’s minds.    PSIG’s work and the transfer regulations aim to stop or reduce pension scams (see the definition in the box below); it is the job of regulated financial advisers and the FCA to prevent unsuitable transfers. Some providers go the extra mile and try to protect members from both, but it is a bit more expensive and unless done well, can lead to member frustration.

Coming back to the technical issues I mentioned at the start. The regulations were drafted at breakneck speed, so there are a couple of wrinkles to iron out. The main one is the wide definition of overseas investments, which effectively means that most receiving schemes will raise amber flags without real cause and result in unnecessary referrals to MoneyHelper. The overseas investments that should raise amber flags are those highly unusual ones, not listed overseas equities or funds. I am sure this will be sorted, but in the meantime, we need to make a balanced judgment between delaying transfers unnecessarily and following the letter of the law. In any complaint, the Ombudsman will consider what is deemed good practice on preventing scams, especially when the policy intent is clear and TPR guidance clarifies the meaning. Only time will tell how this is resolved, but we should be careful we don’t let perfect become the enemy of the good. We need balance. This is the juggling act PSIG’s technical team is grappling with right now, to ensure our Code sets out the facts, the risks, and examples as clearly as possible, so that good practice can be set out. The Code will be published later this quarter when we also launch our shiny new website.

I’ve heard a few different reactions to the November 2021 Conditions for Transfers Regulations. Most believe that the regulations are a positive development, giving trustees and providers a new tool to help combat pension scams, while others view the same regs as an unwelcome nuisance, bringing changes to procedures and introducing extra cost. Some fear that complying with the regulations will slow up transfers and create friction in an already challenging process. Others point out a couple of technical issues with the wording of some clauses.

Of course, all these points are valid to some extent, but what we need is balance based on risk assessment.  For the many schemes that already carry out checks before making transfers (especially by following the PSIG Code), the regulations will mean very little change, but for the first time, schemes that uncover red flag scam signs can confidently refuse to pay. Finding amber flags means directing members to MoneyHelper guidance before making a transfer. These tools were not available until now.

In the recent past, finding scam signs in a transfer created a dilemma. Paying to a possible scam could result in the loss of a member’s pension savings, or a claim for compensation, while refusing to pay could lead to a complaint, confrontation, and compensation, as well as the time and costs dealing with the fallout. Hard to see any upside really.

Some providers felt that you were damned if you do, and damned if you don’t, so chose not to bother checking for scams before paying transfers. The strength of the statutory right to transfer, reinforced by the infamous Hughes case, made scams checking hazardous.

There are also varying views on the true extent of scams, but without reliable reporting and MI, it is impossible to really understand the size of the problem. PSIG’s view, based on earlier sampling, is that roughly 5% of transfers are likely to be scams, so DWP used this 5% measure as the focus for the regulations. 5% seems like a very small proportion, but with over £25bn transferring each year, the value at risk is high.  

The regulations will be successful if we can stop or at least reduce that dangerous 5%. This is where industry attention should be focused.  

Conversely, we don’t want to over-engineer the process for the 95% of transfers that are less likely to be scams. Straight through and electronic transfers rely on speed. Personal pension providers are benchmarked on speed of transfer. Regulators, advisers and customers want speed. We need to keep the wheels turning and ensure that straightforward transfers can be completed quickly. This controls our costs and keeps our members happy. Telling the difference between “good” and “bad” transfers is important, which is where the flags come in. It’s about balance and proportion.

I wish it were simple, but we have two different problems with transfers, and they are hard to tell apart. There are transfers that are scams and transfers that are unsuitable for the individual, whether though bad advice or poor judgement. Sadly, the latter outnumber the former, but both have bad outcomes, and they tend to be conflated in people’s minds.  PSIG’s work and the transfer regulations aim to stop or reduce pension scams (see the definition in the box below); it is the job of regulated financial advisers and the FCA to prevent unsuitable transfers. Some providers go the extra mile and try to protect members from both, but it is a bit more expensive and unless done well, can lead to member frustration.

Coming back to the technical issues I mentioned at the start. The regulations were drafted at breakneck speed, so there are a couple of wrinkles to iron out. The main one is the wide definition of overseas investments, which effectively means that most receiving schemes will raise amber flags without real cause and result in unnecessary referrals to MoneyHelper. The overseas investments that should raise amber flags are those highly unusual ones, not listed overseas equities or funds. I am sure this will be sorted, but in the meantime, we need to make a balanced judgment between delaying transfers unnecessarily and following the letter of the law. In any complaint, the Ombudsman will consider what is deemed good practice on preventing scams, especially when the policy intent is clear and TPR guidance clarifies the meaning. Only time will tell how this is resolved, but we should be careful we don’t let perfect become the enemy of the good. We need balance. This is the juggling act PSIG’s technical team is grappling with right now, to ensure our Code sets out the facts, the risks, and examples as clearly as possible, so that good practice can be set out. The Code will be published later this quarter when we also launch our shiny new website.

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Source: Government response to scams consultation, August 2017