It is no secret that the current regulations are overly restrictive in places and do not necessarily address the key risks trustees and members face when it comes to pension transfers.
The question for the industry will be whether the proposed changes will simplify transfers, where appropriate, but still provide members with sufficient protection.
Background
In November 2021, regulations introduced new conditions restricting the statutory right to transfer for both occupational and personal pension schemes. This was intended to give trustees and scheme managers “the tools they need to intervene where there is a risk of scam activity, while still ensuring that the vast majority of legitimate transfers can proceed smoothly”.
Before a statutory transfer can proceed one of two conditions must be met.
First condition
To meet this condition, the trustees or managers must be satisfied “beyond reasonable doubt” that the receiving scheme is a public service pension scheme, an authorised master trust or an authorised CDC scheme.
Second condition
Where the first condition is not met, the second condition will apply to all other transfers, involving an assessment by the trustees or managers as to whether certain flags are present as part of the transfer. As red flags (such as the member being pressured to make the transfer) indicate a heightened risk of a scam, the statutory right to a transfer will fall away when the trustees determine that one is present. Amber flags (such as high fees or high-risk investments in the receiving scheme) may be an indicator of a potential scam, they trigger a requirement for the member to take scam specific guidance from MaPS, and to provide evidence of having done so. Supporting evidence and information will also need to be provided by the member in respect of certain transfers.
What changes have been proposed?
The changes to the transfer regulations include:
- broadening the first condition so that it can also be met where trustees are satisfied, on the balance of probabilities, that the transfer is to a “reputable” pension scheme. The regulations will set out a non-exhaustive list of factors to which trustees and scheme managers may have regard when assessing whether a receiving scheme is reputable. These factors are likely to include whether there is an existing relationship with the receiving scheme, the nature and risk profile of the scheme’s investments, any prior warning flags or regulatory concerns and the level of transparency around fees and charges
- removing the overseas investment amber flag on the basis that feedback indicates that this flag is often triggered where there have been no indicators of scam activity and that the regulations already require trustees to assess whether the receiving scheme includes high risk or unregulated investments, or unclear, complex or unorthodox investment structures
- introducing a new red flag where the evidence provided does not demonstrate an employment link with the receiving occupational pension scheme. A missing employment link is a “strong indicator” that the receiving scheme may be operating outside its legitimate purpose. This change is primarily aimed at addressing emerging concerns with transfers to small self-administered schemes (SSASs) but will apply to all transfers. SSASs are a form of occupational pension scheme typically established by company directors for themselves and key employees. They offer significant flexibility, allowing members to manage investments directly and to invest in a broad range of assets, and
- exempting members from the requirement to take MaPS guidance where they have done so in the previous 12 months.
Unexpectedly, the incentives red flag, which has been accused of incorrectly blocking some transfers where incentives form part of a legitimate business model, remains. According to the DWP, it provides a “precise protection” against prevailing scam methodologies, and the proposed broadening of the first condition should give trustees greater discretion to proceed with a transfer where they are satisfied that the receiving scheme is safe.
What’s next?
The consultation, which closed on 21 July 2026, marked the first stage in a broader programme of work relating to pension scams and pension transfers. While the immediate focus is on addressing scam risks, later in 2026 the programme is expected to explore wider pension transfer issues, such as how processes can be modernised and how savers who choose to transfer their pensions are enabled to make well informed decisions, while maintaining the robust protections needed to defend against evolving scams risks.
Leanne Carter, Senior Associate – Sackers
