The government is seeking views on removing the overseas investment flag from transfer regulations, a new red flag for transfers where there is no proven employment link with the receiving workplace pension scheme, and requiring trustees to ensure transfers are to ‘reputable’ schemes. The consultation closes on 21 July. 

The changes would amend the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021, which first enabled pension trustees to pause or refuse transfers where they suspect a scam, using a traffic light flag system. A 2023 review found some of the regulations were causing unnecessary delays to transfers, notably the requirement to raise an amber flag where a receiving scheme invests overseas, something nearly all pension schemes do.

The amendments are also seeking to address some of the other issues highlighted by the review, such as savers having to attend multiple guidance appointments when consolidating several pots. 

However, the Department for Work and Pensions has decided to keep the incentives flag, despite the review finding that inconsistent application might have incorrectly blocked some transfers. It said the flag is needed to adequately protect savers.  

More generally, the proposed rules would now require trustees to ensure that a transfer is to a “reputable” scheme on the balance of probabilities, rather than trustees being satisfied beyond reasonable doubt that it is to a specified type of scheme. 

To assess this, there is “a non‑exhaustive list of factors to which trustees and scheme managers may have regard”, which are likely to include but not limited to: 

 

There is also a new red flag, which would replace the amber flag where a transferring member provides all the evidence of an employment link “but the trustees or managers of the transferring scheme decide that this does not demonstrate an employment link between the member and the receiving scheme”.  

The government said there is concern that some small self-administered schemes are being misused for scams, although it admits that these are only a small proportion of pension fraud. SSASs are a type of workplace scheme typically set up by and for directors and key staff, offering a high degree of flexibility.  

The department cites estimates of an average of more than 100 transfers into SSASs per year, with up to one in 10 involving fraud, “although this is likely to be a significant underestimate due to under-reporting”.  

“Too often we see fraudsters trying to trick workers into transferring their savings into bogus pensions. We are stepping in to automatically block transfers where the warning signs are flashing red,” said pensions minister Torsten Bell. 

Gaucho Rasmussen, director of enforcement and general counsel at the Pensions Regulator, which is part of the Pension Scams Action Group, said: “The targeted safeguard proposed is an important step forward in protecting savers. We urge trustees and administrators to have their say.” 

The consultation kicks off a broader programme around pension scams and pension transfers, with the government saying that further measures, including potential new legislation, are being developed this year. The DWP said it will take a joined-up approach with the Financial Conduct Authority. 

Margaret Snowdon, who chairs the Pension Scams Industry Group, welcomed the long-awaited consultation. 

“It is right to end the free-for-all around SSAS and introduce evidence of an employment link in order to transfer to a SSAS. This will upset arrangements that are not work-related, but the priority has to be on protecting workplace scheme members from peril,” she said. However, she thinks an opportunity has been missed to reintroduce the pensioner trustee to SSAS arrangements.   

As scammers become more sophisticated and AI makes everything look legitimate, Snowdon said trustee and provider judgment will be crucial to protect consumers but added that protection must also be available to those making those judgments.

“We need to make it safe for good judgment to be exercised without fear of spurious claims later. This principle already works for discretion on death benefits where judgments consider the relevant information and make decisions that are not perverse – it should be similar for transfers whether to SSAS or other registered schemes,” she said.  

 

Matthew Swynnerton, partner at Arc Pensions Law and member of PSIG’s technical committee, said: “The introduction of the concept of a 'reputable scheme' in the First Condition will put more onus on trustees to think about operation of a clean or green list, but it should also reduce unnecessary referrals to MoneyHelper as there will simply be no need to look at the flags if the decision is made that the receiving scheme is reputable.”  

Trustees will need to liaise with their administrators and review their processes if the regulations change, he advised, adding that PSIG intends to update its Code of Good Practice if the changes come in. 
 

Sackers partner Adeline Chapman said the removal of the current amber flag for overseas investments will be “very much welcomed” by the industry, although the red flag relating to incentives was widely expected to be downgraded too.

 

The proposals are a major step forward, agreed Rachel Vahey, head of public policy at investment platform AJ Bell, who suggested that self-invested personal pensions can be included in the definition of reputable schemes. 

“Rewriting these regulations to include reputable SIPPs within the first condition and to remove the overseas investment amber flag will mean more transfers can progress smoothly and quickly, without getting snagged on the transfer delays and excessive bureaucracy currently being invoked by some pension schemes,” she said.   

Vahey said the proposals “represent a completely different direction of travel than that taken by recent FCA proposed changes to transfers”, which she argued threaten to add delays to non-advised transfers.  

“The FCA should now draw on the rationale behind these new proposals in its approach to non-advised transfers in order to meaningfully minimise delays for pension savers,” said Vahey.