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Transfer top trumps

3 weeks ago

It’s been eight months since the DWP made changes to the statutory right to transfer, and over that period the number of transfers being held up by the new anti-scam measures has steadily increased.

More and more customers requesting transfers are being referred to MoneyHelper for scams guidance, often for what seems like the most low-risk of transfers.

You may well have seen the recent headlines around the letter sent by PensionBee to Guy Opperman (before he resigned and was then temporarily re-instated) reporting certain providers for “abusing” the legislation to delay transfers.

The letter prompted a swift response from TPR/DWP with a joint statement issued broadly saying that if providers would have made the transfers before the new regulations without concern, they should do now.

But will this make any difference?

The key issue here is that although TPR have updated their guidance, the regulations (set by DWP) are law – and they are broadly written.

The two flags which are causing most of the issues relate to overseas investments and incentives.

The regulations state that there is an amber flag present where “there are any overseas investments included in the receiving scheme”. Most pensions won’t be invested exclusively in the UK, and having a global equity fund, or shares in Amazon isn’t the problem the rules are designed to tackle. But if you follow the letter of the law – oppose to the TPR guidance – intention to make these investments in the new scheme should prompt a visit to MoneyHelper before a statutory transfer can proceed.

A similar, but more nuanced issue is that around the definition of incentives. The regulations state that where “the member has been offered an incentive to make the transfer” then a red flag should be raised – and the transfer stopped. The definition in the regulations includes offering free pension reviews, access to pensions before minimum pension age or cashback from their pension savings but is not an exhaustive list. So is cash from the provider for referring a friend (not from pension savings) an incentive? Taking the literal definition of incentive it is anything that encourages a person to do something. So why would you transfer if you weren’t encouraged in some way – be it lower fees, better service, investment choice etc?

It’s important to remember that the rules only apply to statutory transfers. The most recent update to the guidance is that trustees should consider normal industry practice and allow a discretionary transfer if the rest of the due diligence shows the scheme as low risk.

We can only hope that common sense prevails, and unnecessary delays are reduced. However, the problem is that law trumps guidance when challenged. So until we have the promised review of the regulations from DWP we may still see some scheme trustees digging their heels in.

This article was previously published by Sipps Professional

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Lisa Webster
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Lisa Webster

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Senior Technical Consultant

Lisa is an Economics graduate who has been in the financial services industry since 2003. Prior to joining AJ Bell in 2014 she spent nine years working in senior technical and consultancy roles at a major SIPP and SSAS provider. Lisa is part of our Technical Team, responsible for providing regulatory and technical analysis to the business and outside world. She is also a regular speaker at adviser events.

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