Under the regulations where a scheme has concerns members can be referred to the Money and Pension Service (MaPS) for guidance and if there are clear red flags the scheme can refuse the transfer.
Incidents that may trigger a red flag would be if the trustees and scheme managers find that financial advice has been given without regulatory permission, if the pension saver has been contacted by an unsolicited person or if they were pressured to complete the transfer quickly.
Most transfers go through without any issues and the government department stated that this shall continue to be the case even after these regulations come into force on 30 November 2021.
Section 125 of the Pension Schemes Act 2021 has provided powers to set conditions for transfers, to be met before the statutory right to transfer can be exercised. This means there will now be legal restrictions to the statutory right to transfer which work alongside the extensive industry due diligence processes.
Up until now, schemes could not refuse to carry out a transfer where the member was deemed to have a statutory right to do so.
The regulations will be reviewed 18 months after they come into effect to ensure that they continue to remain effective in targeting the evolving methods used by scammers.
Guy Opperman, minister for pensions said: ‘We are tackling the scourge of pension scams in practical terms to safeguard pensioners' hard-earned savings.’
Ian Bell, head of pensions, RSM UK said: ‘We welcome this much called for and long overdue announcement which will help protect vulnerable pension scheme members who have saved long and hard from losing their pension pots to scammers.
‘This move puts the onus on the trustees to develop their systems to raise concerns and even block suspicious transfers of pension funds where fraud is suspected. Previously, pension trustees were powerless to prevent such fraudulent transactions where a member held a statutory right to transfer their funds, and the requirement was to transfer funds within strict timescales.’
Pensions fraud is common in the UK. Fraudsters frequently offer ‘too good to be true’ incentives to pension savers, such as free pension reviews, early access to pension cash, or other time-limited offers.
Lured in by these fake offers, savers are then tricked into transferring their savings into a scam scheme and defrauded out of their money, Action Fraud reported that between January and May 2021, pension scam losses totalled over £2.2m.
Also commenting on the announcement, Jon Greer, head of retirement policy, stated that the new policy does not ‘empower’ pension providers to raise a red flag where they have a reasonable belief that customer has been contacted by an individual or organisation that is subject to a warning on the Financial Conduct authority’s (FCA) warning list.
Greer said: ‘While the FCA’s warning list is by no means a comprehensive list of scammers, it is illogical to exclude it given it’s such an important tool in pension schemes arsenal to detect and prevent fraudulent transfers.
‘Ultimately, the best course of action to ensure you do not fall foul of pensions scammers is to make sure the person or firm you are dealing with is regulated by the FCA; check any offer against the FCA’s Scam Smart website; speak to Money Helper or take regulated financial advice.
‘Given a pension is often the largest asset people have other than their home, it is well worth proceeding with care and speaking to a qualified expert before taking any action.”