The rights of pension scheme members to transfer, that were established in the Pensions Act 2015 are no longer absolute from 30 November 2021.
From that date, in an attempt to identify potential scams and prevent members becoming victims, trustees and scheme managers must ensure specific checks are made before complying with a member’s request to transfer. This places new and potentially onerous requirements on scheme administrators and it is not at all unlikely that firms providing transfer advice will find that both they and clients will have additional hoops to jump through before a transfer will be implemented. It is also entirely possible that some transfers will be delayed, or even refused, as scheme administrators find their feet with the new processes that are required when responding to transfer requests.
Trustees could find themselves faced with difficult to handle member complaints if they do not handle transfer requests to the letter of the new rules.
But there are also serious potential complaint implications for transfer advisers. Imagine providing a recommendation to transfer, thus having to implement a non-contingent fee for the advice, then finding that the scheme is reluctant to implement the transfer, or even rejects it outright. For this reason alone, adviser firms need to be just as aware of the new obligations on schemes as are the scheme administrators and ensure that they and their client are aware of what will be required for a transfer request to be accepted by the scheme and pre-empt any potential obstacles as part of their advice process.
The new rules – an overview
The checks are intended to identify whether the request meets the conditions to enable a statutory right to transfer, including whether a member is required to have guidance from MoneyHelper. MoneyHelper is a free service provided by the Money and Pensions Service. It is sponsored by the Department for Work and Pensions and funded by levies on both the financial services industry and pension schemes.
It is expected that most transfer requests will continue to be straightforward and able to be completed well before the statutory six-month deadline. Indeed, there are some receiving schemes to which a statutory transfer can proceed with no further checks. If the receiving scheme is not one of these, schemes will carry out further assessments to confirm that the conditions for a statutory transfer are satisfied.
These assessments might identify what are being referred to as red and amber flags, which mean that a statutory transfer cannot proceed, or where a member must obtain guidance from MoneyHelper before the transfer may proceed.
When a member applies for a CETV statement or requests a transfer, the scheme must notify the member within one month that their application will be assessed against the two conditions set out in regulations (unless the transfer is made within that period).
The first condition is that the receiving scheme is listed in the transfer regulations.
Schemes will check if the receiving scheme is one of the following:
- a public service pension scheme (schemes established by a public authority for civil servants, armed forces, health service workers, teachers, judiciary, police, firefighters and local government workers)
- an authorised master trust included in the list published by the Pensions Regulator
- a collective defined contribution (CDC) scheme that has obtained authorisation and is included on the publshed list
If the scheme administrator is satisfied beyond reasonable doubt that the receiving scheme is one of those listed above, the transfer can proceed without any further checks.
The second condition is that there is an ‘employment link’, evidence of overseas residency and absence of ‘red and amber flags’.
Where the receiving scheme is not one of those described in the first condition, schemes must consider whether the second condition is met.
- If the transfer is to an occupational pension scheme, the member will have to provide evidence to demonstrate that there is an employment link.
- If the transfer is to a qualifying recognised overseas pension scheme (QROPS), the member will have to provide evidence to either establish overseas residency or an employment link, depending on the member’s employment status.
Schemes will take a risk-based decision, on the balance of probabilities and where they have enough information whether red flags are present or not. In the event that the scheme feels unable to make that decision, further information will be requested from the member. If a red flag is considered to be present, the scheme MUST refuse the transfer.
The examples below are not exhaustive:
- Red flag 1: The member has failed to provide the required information
- Red flag 2: The member has not provided evidence of receiving MoneyHelper guidance
- Red flag 3: Someone carried out a regulated activity without the right regulatory status
- Red flag 4: The member requested a transfer after unsolicited contact
- Red flag 5: The member has been offered an incentive to make the transfer
- Red flag 6: The member has been pressured to make the transfer
Similarly, schemes will consider the presence or absence of amber flags. Again, if necessary schemes will make a formal request for further information from the member.
If, after making this formal request, schemes decide that any of the amber flags are present, the member will be required to attend a guidance session with MoneyHelper before the transfer can proceed
The examples below are not exhaustive:
- Amber flag 1: The member hasn’t shown an employment link or overseas residency
- Amber flag 2: The member can’t show an employment link or overseas residency
- Amber flag 3: High-risk or unregulated investments are included in the scheme
- Amber flag 4: The scheme charges are unclear or high
- Amber flag 5: The scheme’s investment structure is unclear, complex or unorthodox
- Amber flag 6: Overseas investments are included in the scheme
- Amber flag 7: A sharp, unusual rise in transfers involving the same scheme or adviser
Full details of the new rules can be found on the Pensions Regulator website.
And of course, all the other regulations around transfers remain in place, in particular the advice requirement. Schemes have to confirm that any member requesting a transfer of safeguarded benefits with a value of more than £30,000 (to a flexible arrangement) has had advice from an adviser regulated by the FCA. The adviser must have permission for the activity of ‘advising on pension transfers and pension opt-outs’. Schemes will require the following information about any financial adviser and other individuals involved in the transfer including:
- the firm’s name and address
- Financial Conduct Authority (FCA) registration number
- FCA permissions
- role in relation to the transfer