DWP set to review the transfer conditions regulations

DWP’s self-imposed deadline for a review of the 2021 transfer conditions regulations has passed and their report could be published any day now. In readiness for this, we’ve set out our thoughts as to how the new regime has been working based on what we’ve seen in practice.

By way of reminder, red and amber flags were introduced in 2021 with the aim of stopping members from inadvertently transferring their pension benefits to scam schemes.  These flags can be used by trustees to stop (or delay) a transfer from going ahead.

So, 18 months on from when they were introduced, have red and amber flags had the desired impact on transfers?

Broad red and amber flags

Red flags prevent a statutory transfer from going ahead.  Amber flags require trustees to pause the transfer process and refer the member to a Moneyhelper appointment.  This can cause delays.  In practice, both red and amber flags may be raised even where trustees do not suspect that the receiving scheme is at risk of being a scam.  In our experience, this tends to be because:

• some of the amber flag tests in legislation are subjective and / or broadly worded and many trustees take a cautious approach when applying the tests
• some receiving schemes offer low-value incentives (which are red flags) to transfer in the ordinary course of business
• there is a mismatch between the DWP’s stated policy and the legislation in certain areas.

Frustrated members

Some members are becoming frustrated when a red or amber flag is applied to their transfer.  The new requirements mean that trustees often need to ask further questions of the member.  This can slow down the transfer process and, in cases where questions need to be asked even if there is believed to be no genuine risk of a scam, the danger is that members switch off and the credibility of the entire process is undermined.

Some members are also experiencing a lack of consistency in how different schemes interpret the legislative requirements.  Where members are attempting to consolidate their pots into one receiving arrangement, they may find that the transferring schemes take a different view of whether there are red or amber flags, which can be both confusing and frustrating for the member.

It isn’t surprising that transfers remain one of the biggest areas of complaint for the Pensions Ombudsman.

Tight timescales

The statutory timescales for transfers were already challenging before the current requirements were introduced.  Add to that the need to:

• review each transfer for red and amber flags (which is offered by many administrators as an “add-on” service),
• refer certain members to Moneyhelper, and
• ask members additional questions,

and the same timescales are squeezed even tighter.

Moneyhelper referrals

Moneyhelper have raised concerns about incorrect referrals from pension schemes, and the lack of information provided to members about which flags have been identified.

When might we have some answers?

The DWP is currently reviewing the transfer regulations, which they committed to doing within 18 months of their introduction.  The hope is that where there is a mismatch between the DWP’s stated policy and the regulations, the wording will be clarified to enable more consistency in how the requirements are implemented.

Recent guidance published by Pension Scams Industry Group (PSIG) on the transfer regulations provided some helpful views but no firm conclusion on how to approach key issues which are being seen in practice, as PSIG are waiting for the outcome of the DWP’s review. PSIG aims to publish a revised code which establishes industry best practice only once the regulations have been updated.

The tail end of transfer complaints can be long and, as yet, there have been no Pensions Ombudsman determinations for transfer cases under the current regime.  In due course, it will be helpful to see how the Pensions Ombudsman views the new requirements and where trustees and administrators should “draw the line” on red and amber flags.

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