3 useful tips to cope with the new pension transfer regulations, and what the rules mean for you and your clients

On 30 November 2021, the government introduced new pension transfer regulations with the aim of further protecting savers from falling victim to pension scams.

Judging by the reaction of some of the advisers we work with, the introduction and impact of these regulations seem to have flown under the radar.

So, read on for a look at these new rules, and what has changed.

A further step in ensuring pension holders don’t lose their savings to scammers

The Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 are a further step in attempts to ensure that people do not lose their savings to scammers.

However, it is the first time that the transferring scheme has the legal power to potentially block a pension transfer.

These new regulations apply to both occupational and personal pension schemes, to both defined benefit and defined contribution arrangements.

Under the new pension transfer regulations, a transfer request can only proceed if one of two conditions are met. If this is not the case, the transfer cannot proceed, and the trustees or scheme managers must refuse the request.

First condition

Where the transferring scheme is satisfied beyond doubt that the receiving scheme is one of the following types of schemes, the transfer is able to proceed without any further checks:

• A Public Service Pension Scheme
• A Master Trust authorised by The Pensions Regulator
• A Collective Money Purchase Pension Scheme (CMPS) authorised by The Pension Regulator.

Second condition

If the receiving scheme cannot be identified as one of the types of schemes as laid out in the first condition, but falls into one of the categories below, further subsequent criteria will need to be met:

• A Personal Pension Plan, authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority
• A self-invested personal pension (SIPP) regulated by the Financial Conduct Authority
• A UK Occupational Pension Scheme where evidence of employment has been provided
• A qualifying recognised overseas pension scheme (QROPS) where evidence of a client’s residency status and link to employment is provided.

Where the receiving scheme is identified by the transferring scheme as one of the above, the regulations have introduced several risk warning flags, which then translate into a traffic light system to determine the level of risk applicable to the transfer.

How the transferring scheme is able to proceed depends on which flag applies.

Green flag

In short, these are those type of schemes laid out in the first condition, which are able to be fast-tracked without satisfying any further criteria.

Amber flag

An amber flag can apply where a receiving scheme falls into the list of schemes set out in the second condition and indicates the potential risk of a pension scam.

If found to be present, a transfer to a scheme that has been amber-flagged can only proceed once the client has provided the transferring scheme with evidence that they have taken scam-specific guidance from Money Helper before proceeding.

Criteria that can trigger an amber flag includes:

• The client cannot show evidence of an employment link or overseas residency, where appropriate
• The receiving scheme can accommodate high risk or unregulated investments
• The charges levied by the receiving scheme are unclear or high
• There is evidence that there is a high volume of transfers to a single scheme or involving a single adviser.

While one or more amber flag criteria being met does not prevent the transfer from proceeding, the step to seek guidance from Money Helper is designed to ensure that the client pauses and obtains further information before proceeding further.

Red flag

While an amber flag may delay a transfer, a red flag will see a transfer stop in its tracks. The criteria for a red flag relate mainly to the financial advice and/or financial adviser involved with the transfer and can include the following:

• The client requested the transfer after an unsolicited contact (a cold-call)
• The individual adviser or the firm they work for is not fully authorised and regulated
• The client has been offered an incentive to make the transfer, or has been pressured
• Any evidence requested by the client by the transferring scheme has not been provided
• The client cannot show evidence, where requested, of receiving guidance from Money Helper.

The aim of these new regulations is to protect individuals from falling victim to pension scams and is likely to succeed with this.

However, there will be an impact on both clients and their advisers when recommending pension transfers that do not satisfy the first condition while pension providers come to grips with, and introduce, new processes.

Furthermore, where an amber flag is identified, it is the client that must seek guidance from Money Helper. This is not something that advisers are able to do on behalf of their clients.

In instances where an amber flag has been identified and the request to transfer is genuine, this could lead to a delay in the time it takes a transfer to complete.

While we look at the impact of these new regulations on IPM elsewhere, it is likely, from how the regulations are currently laid out, that open architecture SIPPs, such as those offered by IPM, will trigger an amber flag.

3 tips that can help you assist clients in transferring to an “amber flag” scheme

We have now been working with the new regulations for more than six months. From what we have seen, there are a number of areas where advisers can assist clients when a pension transfer to an amber flag scheme is being recommended.

1. Start the transfer process sooner

If there is a need for a transfer to complete in a timely manner – for example, for the payment of benefits or for a commercial property purchase – then initiating the transfer advice process a few weeks earlier will allow for any increased time the transfer takes because of the new regulations.

2. Speak to the transferring scheme about the transfer

If you can speak to the current provider as to whether a transfer you are recommending will trigger an amber flag, this will allow you to advise the client as to the likely process they will need to follow to carry out their transfer.

3. Make the client aware of Money Helper

Money Helper is a government service designed to give guidance to individuals on pension-related scams and how best they can protect themselves from these.

Where a receiving scheme is deemed to have an amber flag, pointing clients to Money Helper during your transfer recommendation process can assist with not only ensuring a client knows where to go to receive this guidance, but also to ensure that this is done at the earliest possible opportunity.

Get in touch

If you have any questions about the pension transfer process or the new regulations, or any other aspects of pension planning, please contact us. Email info@ipm-pensions.co.uk or call 01438 747 151.