The Government has unveiled new laws designed to help retirement savers protect their pensions from scammers.
From 30 November 2021 pension companies can prevent the transfer of pension funds if they believe that funds may be transferred to a fraudulent third party.
Under current legislation savers have the automatic right to transfer their pensions without the approval of trustees or scheme managers. From the end of this month, however, a transfer request can be blocked by a trustee and scheme manager by giving it a ‘red flag’. An ‘amber flag’ can also be used to pause a pension transfer if there is some concern about fraud, which can be removed when the scheme member confirms they have taken scam specific guidance from the Money and Pensions Service (MaPS).
Although the new laws will take away the automatic right to transfer pensions, the Government states that currently 95% of transfers are not suspicious to trustees and scheme managers.
As well as this, all transfers to master trusts, collective defined contribution (CDC) schemes and funded public sector schemes will be designated as ‘safe destinations’, meaning that funds can be automatically transferred to these schemes.
Becky O’Connor, head of pensions and savings at interactive investor, said: “The proposals could help to prevent pension transfer scams because they remove the automatic right to transfer a pension – something fraudsters have been exploiting.”
She added: “The new system might slow down some pension transfers, although this should not be a significant risk once the regulations have bedded in. It is important that freedom to choose the right authorised and regulated provider is maintained for people who want to move their pension.”
Originally schemes administered by insurance companies were put forward as ‘safe destination’ and thereby exempt from the new legislation, however this proposal has been dropped. Tom Selby, senior analyst at AJ Bell, said: “Depending on the level of concern raised by the responses, this intervention could either be to block the transfer altogether or require the member to take scams guidance from Pension Wise.
“Crucially, it will be up to pension schemes to decide whether a transfer is suspicious or not. Whereas previously blocking a suspicious transfer came with the real risk of being sued, this legislation creates a specific legal framework within which members’ interests can be protected.
“Provided firms apply these rules sensibly and don’t delay matters by asking the risk questions on transfers where it is clear the risks are very low, they should add extra security for transferring members without impacting the vast majority of legitimate transfers.”
