It is often the case that the world of SIPP and SSAS is caught up in the maelstrom of general pensions legislation, rather than it being recognised for the niche sector that it is. And no more so than the imaginatively named Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021.
The principal purpose of these new regulations is a good one, to get rid of the evil scourge of pension scammers. This wicked practice has seen an eye watering £14billion stolen from UK pension savers and it is truly heart-breaking to hear of the individual stories of these poor people.
So we of course wholeheartedly support all initiatives to eradicate incidences of pension scams and other unsavoury practices. However, we are conscious that a dogmatic application of the new transfer regulations to SSAS and SIPP arrangements may result in poor consumer outcomes for people looking to transfer their pension benefits for genuine reasons.So what are the changes?
From 30 November 2021, trustees and scheme managers must ensure specific checks are made before complying with a member’s request to transfer their pension.
The new regulations give trustees and providers greater powers to prevent suspicious transfers. The principal difference under the new framework is that even where a member has a statutory transfer right, that right cannot be exercised unless the conditions set out in the new regulations are met.
In general terms, the regulations provide the following:
- Proposed transfers to a public service scheme, a master trust or collective DC scheme can proceed as normal.
- For all other proposed transfers, transferring schemes must check for risk indicators in the form of red or amber flags (as outlined below). Where amber flag indicators are identified, members will have to take scam-specific guidance from the MoneyHelper section of the Government’s Money and Pensions Service (MaPS) before they can exercise their right to transfer. Where red flags are present, the statutory transfer right will not apply.
- In the case of proposed transfers to other occupational pension schemes or to a QROPS, schemes will need to ask members to demonstrate either an employment link with a proposed receiving occupational scheme (via wage slips, bank statements and other documents), or a residency link if the transfer is to a QROPS.
- If the member cannot provide the evidence, this would be considered a scam risk indicator. These cases will fall into the amber flag group and the member will have to take scam-specific guidance.
- If the trustees are satisfied with the evidence provided and there are no other red or amber flags, then the intention is that the transfer can proceed. However, if trustees/providers consider that there are other flags even though satisfactory evidence of the employment or residency link has been provided, they can take action to prevent or pause the transfer.
Where evidence or information is requested, this must be provided directly by the member.
What are the red and amber flags?
A red flag will prevent the transfer from proceeding. An amber flag means that the member must provide evidence of having taken MoneyHelper guidance (by providing a unique identifier) – if the member cannot do this then the transfer cannot proceed.
- Involvement of an adviser without the proper FCA permissions;
- Evidence of cold calling or other unsolicited contact; or
- Member has been pressured or offered incentives (including free pension reviews, cashback or early access) to transfer.
- Member fails to provide a substantive response to a request for information; or
- Member fails to provide evidence of taking MoneyHelper guidance.
- Evidence is not genuine or not provided directly by the member;
- The member’s evidence fails to demonstrate the employment or residency link; or
- In relation to the receiving scheme and based where relevant on the trustees’ judgement and knowledge, any of the following is present:
- High-risk or unregulated investments;
- Unclear or high fees;
- Unclear/complex or unorthodox investment structure;
- Inclusion of overseas investments; or
- A ‘sharp or unusual’ rise in the volume of transfer requests involving the same scheme or adviser.
- Member provides an incomplete response to a request for information.
Most transfers are made through the Origo transfer service as this ensures a slick and timely transfer process. However this doesn’t exempt providers from the regulations, so Morgan Lloyd have been in discussion with Origo in order to seek solutions to ensure as far as possible, that a seamless process for the transfers is maintained.
At the same time all main providers have been contacted and reminded of Morgan Lloyd’s credentials and reaffirmation of our resolute commitment to the professional standards expected in the processing of pension transfers and the authenticity of the resulting pension products.
Nevertheless, in some instances transfers are now being questioned by providers despite 100s of previous transfers being completed without any concern. So we have politely reminded these providers of the level of previously completed transfers from them, as a reminder of their acceptance and agreement of the transfer process. It is hoped that this will enable the larger providers to take a more sensible and pragmatic approach when dealing with the pension transfer.
We will of course be monitoring this situation to ensure that timely and efficient transfers are maintained in order to ensure that the customer does not become an unintended victim of these good intentions.
The information above is based on our understanding of the legislation applicable to UK Registered Pension Schemes, and HM Revenue & Customs rules. It is provided as a summary only and should not be taken as advice - Morgan Lloyd SIPP Services Ltd and Morgan Lloyd Administration Ltd are not authorised to give financial advice and will not be responsible for any decision or action taken as a result of relying on this information. If you are a retail client you should seek financial advice from a financial adviser who is authorised by the Financial Conduct Authority and/or seek guidance from the Government’s Pension Wise service.