- New pension transfer rules could limit the level of fraudulent behaviour
- While the news is positive, concerns remain about the prospect of further transfer delays
Specialists have welcomed new regulations designed to prevent pension transfer scams, but warn that they could exacerbate the issue of transfer delays if new powers are not used proportionately.
More than £30m of losses to pension scammers were reported to Action Fraud between 2017 and August 2020, with some arguing that even this figure is an underestimate. Scams tend to be underreported for various reasons, including a sense of embarrassment on the part of the victim.
The new rules require pension providers to raise 'red' or 'amber' flags if an individual tries to transfer their savings into a pension scheme outside of an approved list. A provider that strongly suspects a scam can block the transfer by raising a red flag, while if a so-called amber flag is raised, the person seeking to transfer their pension would need to provide evidence they have understand the risks before moving the money.
The new rules, which follow previous anti-scam measures such as a ban on cold calling, have been broadly welcomed.
But some suspect it could result in pension transfer delays, at least early on.
“There is a risk that the new system could slow down some legitimate transfers, although this should not be a significant problem once the regulations have bedded in,” said Becky O’Conner, head of pensions and saving at interactive investor.
“It is important that freedom to choose the right authorised and regulated provider is maintained for people who want to move their pension for good reasons, like seeking better value or a wider range of investments.”
Tom Selby, head of retirement policy at AJ Bell, pointed to concerns that risk-averse pension providers would use the amber flag warnings in an “overzealous” manner, creating delays. Some of this relates to potential scam indicators outlined in the rules.
“The amber flag rules say overseas investments could be indicators of a scam. However, the fact virtually all defined contribution schemes allow overseas investments which aren’t linked to scams obviously means this shouldn’t in-and-of itself cause providers to insist transferring members must seek guidance before proceeding,” he said.
