Pension Scamming: new powers may allow trustees to stop suspicious transfers
How will the new regulations prevent pension scams?
The UK Government confirmed its intention to introduce new regulations to help prevent pension scams.
In essence, the regulations are expected to allow a member’s transfer request to be blocked in certain circumstances where pension scamming is suspected.
I accept I may be a complete pensions geek, but my stomach did a little flip of excitement when I heard the news. For anyone interested in preventing pension scamming, this is a big deal and is something many of us have been hoping for for a long time.
One of (if not, the) biggest obstacles to trustees trying to prevent pension scams is the fact that most members have a statutory right to transfer their benefits (subject to limited conditions which are satisfied in most cases). If trustees refuse to transfer the member’s benefits for any reason, they risk incurring legal and / or regulatory repercussions.
On the other hand, if they allow a transfer to proceed and the member ends up losing their benefits to a scammer, they may face criticism for having failed to spot the scam or provide the member with sufficient warnings about the risks of his or her decision to transfer. In this way, trustees are caught between a rock and a hard place.
The UK Government has now proposed that members’ statutory rights could be restricted in certain circumstances where ‘red flags’ are identified which indicate the transfer may be part of a scam, allowing trustees to block the transfer without repercussions.
The move will be welcomed by those of us who have experienced the difficulties and frustrations of the current statutory right in practice. But whether the proposal will bring universal relief to trustees remains to be seen.
In order to be effective, the regulations will need to be both clear and flexible – a combination that is tricky to achieve. They need to be sufficiently unambiguous to allow trustees to be sure about when they can restrict a member’s statutory right and when they can’t.
But they must also be sufficiently flexible to allow the circumstances of a particular transfer, as well as developments in the nature of pension scamming itself (which has already evolved significantly over the past five years), to be taken into account.
Key to how the regulations will work in practice will be how the ‘red flags’ mentioned by the Government are to be defined. As anyone who has been involved in reviewing suspicious transfers requests will know, what is a ‘red flag’ in one case will not necessarily be a concern in another.
It’s also crucial to ensure that legitimate transfer requests won’t inadvertently be caught by the new regulations, and that members retain their freedom to make decisions about their own pensions as far as possible.
Nevertheless, the UK Government’s commitment to change is to be welcomed, and I for one am hopeful that its proposals will ultimately have positive implications for trustees and – most importantly – members themselves.
If you would like advice on preventing pension scamming, including your duties as a trustee or provider, we’d be happy to help.
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