Pension plans have the power to stop suspicious transfers


Pension plans will soon be able to block suspicious transfers amid the rise in scams – but will the new red tape drive cautious savers crazy?

  • If “red flags” are detected, the pension provider may block the transfer.
  • With the “orange flags”, the pension saver will first have to follow the advice on scams
  • New rules will come into effect on November 30

Pension plans will soon be allowed to stop suspicious transfers under new government rules designed to protect savers from retirement scams.

As of November 30, it will be up to the trustees and plan managers to decide whether or not to approve a member’s request to transfer their pension fund to another plan.

While designed to prevent savers from handing over their savings to fraudsters, the move also means more paperwork and possible delays for legitimate transfers, as some experts have pointed out.

New pension rules: pension providers will soon be allowed to stop suspicious transfers

The rules are in response to an increase in pension transfer scams since the introduction of pension freedoms in 2015.

Since then, savers can access their pools from the age of 55 and can do whatever they want with them, including withdrawing all the funds at once and transferring them elsewhere.

However, fraudsters took advantage, often succeeding in luring savers with “free pension reviews”, early access to pension funds or other “time-limited” offers.

According to the Financial Conduct Authority and the Pension Regulator, more than £ 30million was lost to scammers between 2017 and 2020.

Currently, pension funds can only notify a customer if they detect a suspicious transfer request.

But by the end of the month, if a pension plan recognizes clear signs of fraud or methods used by crooks, it can stop a transfer request by giving it a “red flag.”

If administrators spot “orange flags” – or possible indicators of a scam – retirement savers can still transfer, but only after taking advice on scams from the Money and Pensions Service (MaPS).

What are the “red” and “amber” flags?

red flags

When a pension plan raises a red flag, it automatically blocks a transfer. There are a number of scenarios where a red flag should be raised, especially when a pension saver:

• did not respond to a request for information regarding a suspicious transfer

• indicates that they received financial advice from a company without the appropriate regulatory approvals

• requested the transfer following an unsolicited request from a person or company with which it had no existing relationship,

• been pressured or indicated that they felt pressured to make the transfer.

Amber flags

When a pension agency raises an orange flag, the member attempting to transfer will be required to follow the scam advice of the Money and Pensions Service (MaPS).

The pension plan will also need to obtain confirmation that the member has received these instructions before allowing the transfer.

Scenarios in which an orange flag will be present include the following:

• there are high-risk or unregulated investments included in the plan to which the person is transferred

• the fees charged by the reception system are unclear or high

• the proposed investment structures are complicated or unorthodox

• the reception regime includes investments abroad

• there has been a high volume of transfers to a single host scheme or involving a single advisor or firm.

“We are concretely fighting the scourge of pension scams to protect the hard-earned savings of retirees,” Pensions Minister Guy Opperman said.

“These measures will offer better protection to savers.

However, while being welcomed by pension providers, the new rules could also slow down the process, as most transfers will now involve judgment on the part of the pension plan.

“Provided that companies apply these rules wisely and do not delay things by asking questions about the risks on transfers when it is clear that the risks are very low, they should add additional security for the transfer of transfers. members without affecting the vast majority of legitimate transfers, ”said Tom Selby, senior analyst at AJ Bell.

Shane O’Reilly, partner in the pensions team at law firm Norton Rose Fulbright, also pointed out that the new rules could be a double-edged sword for savers and pension providers.

“If they are wrong, the scheme could end up at the mercy of the losses the member suffered at the hands of fraudsters,” O’Reilly said.

“We could also see an increase in claims for lost investment opportunities – disgruntled members claiming the directors were being too cautious and blocked a legitimate transfer.

“In practice, we can see many orange flags being raised by administrators playing it safe and therefore a high demand for advice on MaPS scams.

“I hope MaPS is ready to handle a high volume of requests if this prediction turns out to be correct.”

The government is committed to reviewing the new regulations within 18 months to ensure they remain as effective as possible.

Pensions Ombudsman Anthony Arter said complaints received after the regulations come into force will be investigated under the regulations “on a case-by-case basis”.

“Having witnessed the real damage that pension scams can inflict on an individual’s retirement, I welcome the new transfer regulations which aim to make transfers more secure,” he said.

Jon Greer, head of retirement policy at wealth management firm Quilter, said: “At the end of the day, the best course of action to make sure you don’t fall prey to retirement scammers is make sure the person or company you are dealing with is regulated by the FCA (Financial Conduct Authority); check any offers on the FCA Scam Smart website; talk to Money Helper or take regulated financial advice. ‘


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