Pension transfers to be subject to flag system to stymie scammers

Our head of pensions and savings comments on introduction of new rules.

New regulations designed to prevent pension transfer scams with a red and amber warning system, come into force from tomorrow (30 November).

The rules, which follow a consultation by the Department for Work and Pensions (DWP), require pension providers to raise red or amber ‘flags’ when a transfer attempt to certain types of scheme is made.A ‘red flag’ will mean the statutory right to transfer is removed, while an ‘amber flag’ can be used to pause a transfer until the scheme member can prove they have taken scam-specific guidance from the Money and Pensions Service (MaPS).

An effective green signal, meaning the statutory right to transfer still applies, will now only apply to public service pension schemes, Master Trust schemes and collective money purchase schemes.

It’s hoped the new system will prevent pension scams, as fraudsters frequently use pension freedoms and the statutory right to transfer from one scheme to another to tempt people to transfer their life savings. The DWP has said it will review the new regulations within 18 months.

Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “The new legislation has the potential to seriously reduce pension scams, as the statutory right to transfer was effectively enabling scammers.

“By making the ability to transfer more conditional and setting in place clear barriers, it will be very difficult for scammers to get people to transfer their cash.

“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.

“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.”