Will the new transfer regulations lead to a surge in additional referrals for scams guidance?
Will the new transfer regulations lead to a surge in additional referrals for scams guidance?
31 Mar 2022
Chris James assesses the early fallout of the Government’s recently updated transfer legislation
The Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 legislation came into effect in late 2021.
Whilst the introduction of regulations to help combat pensions scams have been welcomed, the drafting of the regulations themselves has raised concerns. Soon after the regulations were published, concerns were raised questioning the clarity of some of the specific flags, an unintended consequence of which will be that the majority of transfers result in a referral to MoneyHelper for additional scams guidance.
Amber, red, or grey?
The biggest grey area of interpretation has been the instruction for an amber flag to be raised if “there are any overseas investments included in the receiving scheme”. Commentators have questioned how literally this condition this should be interpreted, given that a large percentage of investment vehicles offer funds containing foreign-based equities, bonds and other asset classes.
The Pensions Regulator’s own guidance appears to offer a more nuanced take on the “overseas” question, stating “the specific concern here is not whether the investment is in, for example, a global equity fund but whether the investment is in assets or funds where there is a lax, or non-existent, regulatory environment or in jurisdictions which allow opaque corporate structures.”
However, are trustees in danger of not exercising their duties correctly if they do not follow the law as it is written?
It is likely that different scheme administrators and legal advisors may take different approaches to the interpretation of the overseas investment flag. Some may be pragmatic and waive applying the flag to transfer cases that contain long-standing, recognised overseas portfolios in an otherwise low-risk vehicles; others, wary of challenge, will be following the regulations to the letter and sending each of the cases to a date with MoneyHelper, amber flag in tow.
This may well present MoneyHelper with a logistical challenge in the coming months if the demand for appointments surges. The Joint Committee on Statutory Instruments reviewed the wording of the legislation and has required the regulation to be clarified and the Government have ceded that it was not the intention of the regulations to hold up large volumes of low-risk transfer cases from being approved.
The Government has given commitment to publish a review of the regulations within 18 months of them coming into force and will determine whether there is any evidence that they are not working as intended. We may see the overseas scenario amended or redrafted. One possible solution mooted, whilst retaining the current wording is the introduction of an overseas investment “clean list”, which would seek to create a register of overseas investment funds considered to be low-risk and thus exempt from triggering the amber flag. However, this approach is not without risk, and regular review of such a list would be required, which could increase the governance burden on trustees.
XPS welcomes the commitment to review the regulations. In the meantime, trustees will need to agree their interpretation of the overseas flag and, depending on their decision, be prepared to facilitate a sharp increase in referrals to MoneyHelper in the immediate future.
For more information on the Government's transfer scam regulations, please read here.
The XPS Scam Forensics webpage monitors monthly incidences of scam flags identified by its Scam Protection Service.
If you would like more information or to comment please contact Helen Cavanagh or Chris James.