TPR had previously updated their guidance regarding the handling of transfer requests. The guidance indicates that certain incentives may be deemed standard industry practices.
It highlights that concerns about overseas investments arise primarily in inadequate regulatory environments or jurisdictions permitting opaque corporate structures.
TPR reasserted that trustees, following thorough due diligence checks, can determine a low risk of scam activity and exercise discretion to proceed with a transfer, provided it aligns with their scheme rules.
The revised guidance offered a path forward for schemes facing a dilemma. But a transfer made in such circumstances would be a discretionary transfer lacking the statutory status, potentially leaving the trustees open to future claims should the transfer result in poor outcomes for the member.
But guidance is just that; the rules come from the regulations themselves, so following the letter of the law, a transfer to a scheme that allows overseas investment would be an amber flag.
This was tested recently in a pension ombudsman ruling. It involved a complainant suffering a loss in transfer value after being referred to MoneyHelper because the receiving scheme included investment global funds managed by FCA-regulated fund managers.
The ombudsman decided not to uphold the complaint because they agreed the trustees of the ceding scheme had acted reasonably in directing the complainant to a MoneyHelper safeguarding appointment.
The ombudsman did comment in their determination that “it appears the wording of the transfer regulations and intended practical application may not be aligned”, which is consistent with the industry’s feedback.
In their conclusion of the review of the regulations, the DWP said original policy intent remains appropriate, but it acknowledged the industry’s concerns particularly around the incentives and overseas investment flags.
The DWP have committed to collaborate with the pensions industry and TPR to explore potential ways of changing the regulations to improve the pension transfer process, while preserving the intended policy objectives.
Any changes made to the regulations must balance the inconvenience experienced in a small fraction of cases against the need of reducing the risk that members may face the potential loss of their entire pension funds.
Scammers’ tactics will evolve, so regularly reviewing the regulation and guidance will be advisable to ensure its adaptability to any changing strategies.
Joshua Croft is senior technical consultant at AJ Bell
