Statutory transfers

The Government has introduced new rules to help pension providers and trustees stop transfers that could result in pension scams.

Most pension scheme members have a ‘statutory right to transfer’. That means they can, by law, transfer their pension to another scheme or provider. However, there were cases where pension providers and trustees were concerned people were transferring and being scammed, but – because members had a statutory right to transfer – were powerless to stop that transfer going ahead.

The Pension Schemes Act 2021 takes away that statutory right unless certain conditions are met. There are two conditions. If either of these is met, the statutory right to transfer exists and the transfer must go through. If neither of these conditions is met, providers and trustees must check and decide whether to allow the transfer on a discretionary basis and, where they have concerns, point members towards taking guidance. Trustees are not allowed to permit a transfer to proceed on a discretionary basis because advice has been given – the other considerations still apply.

This is how it works:

The first condition

The first condition covers transfers to three different types of scheme:

1. Public sector schemes.
2. Authorised master trusts.
3. In the future, authorised collective money purchase schemes.

If the proposed transfer is to one of these schemes, the statutory right exists, and the transfer must be allowed to go ahead.

The second condition

The second condition applies to all other transfers.

If the member wants to transfer to an occupational scheme, then schemes will ask them to demonstrate they are employed by the scheme’s sponsoring employer. They can do this by providing evidence such as payslips for the past three months, and a schedule showing the contributions paid on the member’s behalf in the last three months.

If the member wants to transfer to an overseas pension scheme, then schemes will ask them to prove they are resident in the same jurisdiction of the QROPS, or that they have an employment link to the scheme.

For these transfers – and all other transfers – the second condition is met where schemes’ due diligence checks show there are no 'red’ or ‘amber’ flags’. It’s worth noting again that Trustees are required to apply due diligence on all schemes where a statutory right doesn’t automatically exist; the customer having taken advice on the transfer doesn’t remove the need for this. To carry out these checks, schemes may ask the member, advisers or the receiving pension scheme questions for evidence.

Red flags that could stop transfers

If there is a red flag, then the statutory right to transfer falls away and schemes could stop the transfer going ahead.

The red flags are where the transferring scheme encounters one of the following:

• the member hasn’t given us a substantial response to a request for evidence or information;
• an amber flag has been raised, and the member has not demonstrated that they have attended a MoneyHelper guidance session (see below);
• an unregulated person has carried out a regulated activity in relation to the transfer;
• the member requested a transfer after unsolicited contact;
• the member has been offered an incentive to make the transfer; and
• the member has been pressured to make the transfer.

Amber flags and guidance

The presence of even a single amber flag means that trustees must ask the member to attend a guidance session with MoneyHelper on pension transfer scams. Once they have done this, they will be given a unique identifier number by MoneyHelper that they can show as evidence they have attended the session.

Amber flags are where:

• the member has provided a substantive but incomplete response to a request for evidence or information;
• the trustees think that some or all of the evidence provided may not be genuine, or that any evidence required to be provided by the member may not have been provided directly by the member themselves;
• the evidence does not demonstrate an employment link or residency link (only for a transfer to an occupational pension scheme or QROPS);
• there are any high-risk or unregulated investments included in the receiving scheme;
• there are any unclear or high fees being charged by the receiving scheme;
• the structure of investments included in the receiving scheme is unclear, complex or unorthodox;
• there are any overseas investments included in the receiving scheme;and
• there has been a sharp or unusual rise in the volume of transfer requests to the same scheme or involving the same adviser and/or firm of advisers.

MoneyHelper guidance session

If schemes’ due diligence checks raise any amber flags, they must ask the member to attend a guidance session with MoneyHelper. Schemes will give members information on how they can set up their session with MoneyHelper (the member has to both set up the session themselves and attend the session on their own).

The session will be by telephone and will last around 40 minutes to one hour. MoneyHelper will ask the member questions about why they want to transfer their pension.

After the session, MoneyHelper will send them a summary of the session and a unique identifier number as evidence they have attended.

Don't worry, most transfers will be smooth

Most of the transfers your clients request will go through without any red or amber flags being raised.

The Pensions Regulators’ guidance says providers and trustees should take a risk-based approach to their decision making. Where the receiving scheme is not occupational or a QROPS, they should consider whether they have enough information to determine if the transfer can proceed or whether further information is required to inform their decision.

The guidance also suggests that providers may wish to keep a 'clean list' of personal pension schemes and providers that are considered safe based on what they know about them already, so that they can feel comfortable, in the absence of any apparent danger signs, in making a transfer to a scheme on that list without the need for further enquiry or any more due diligence.

It is expected most scheme administrators’ and providers’ existing transfer processes will already be closely aligned to the new regulations. Therefore, the impact on any clients transferring to and from mainstream schemes will be minimal.

Where there could be challenges is with transfers from other (most likely occupational) schemes if the administrator or trustees are not familiar with the SIPP market in general. However, we will do what we can to ensure a smooth transfer process, and will work with peers in the industry to minimise impact to our customers.