In November 2021 new regulations regarding statutory transfers were implemented to safeguard members’ pension savings from potential loss in the event of a transfer to fraudulent and scam pension arrangements.
Trustees and scheme administrators are now required to undertake extra measures prior to processing a pension transfer.
Before the changes to legislation most pension scheme members had a statutory right to transfer, giving them the legal right to move their pension to another scheme or provider.
Nevertheless, there have been instances in which pension providers and trustees expressed apprehension about individuals falling victim to scams during transfers.
Unfortunately, due to members’ statutory right to transfer, these providers and trustees lacked the authority to prevent such transfers from proceeding.
The Pension Schemes Act 2021 removed the statutory right to transfer unless specific conditions are satisfied. Two conditions determine the existence of the statutory right to transfer, and if either is met, the transfer is mandatory.
In cases where neither condition is fulfilled, providers and trustees must assess and decide whether to permit the transfer at their discretion and, where they have concerns, point members towards taking guidance.
The occupational and personal pension schemes (conditions for transfer) regulations 2021 have been in place now for more than two years, in this article we will look at some of the key points within the process and what could change following the recent Department for Work and Pensions review of the regulations.
How the regulations work
The first condition covers transfers to three different types of scheme:
- Public sector schemes – schemes established by a public authority for civil servants, armed forces, health service workers, teachers, judiciary, police, firefighters and local government workers.
- Authorised master trusts – occupational pension schemes approved by The Pension Regulator that provide money-purchase benefits used by two or more employers.
- Authorised collective defined contribution (CDC) schemes – occupational schemes that pool contributions, share risk, and aim to provide a target retirement income approved by TPR.
If the proposed transfer is to one of these schemes, the statutory right exists, and the transfer must be allowed to go ahead.
The second condition applies to all other transfers.
If the member wants to transfer to an occupational scheme, the transferring provider will ask them to demonstrate they are employed by the sponsoring employer of the receiving scheme.
They can do this by providing evidence such as payslips for the past three months, and a schedule showing the contributions paid on the member’s behalf in the past three months.
If the member wants to transfer to an overseas pension scheme, the transferring provider will ask them to prove they are resident in the same jurisdiction of the qualifying recognised overseas pension scheme (QROPS), or that they have an employment link to the scheme.
For these transfers – and all other transfers – the second condition is met where transferring providers’ due diligence checks show there are no ‘red’ or ‘amber’ flags.
It is worth noting again that trustees are required to apply due diligence on all schemes where a statutory right does not automatically exist; the customer having taken advice on the transfer does not remove the need for this.
To carry out these checks, trustees may ask the member, advisers or the receiving pension scheme questions for evidence.
