New data reveals major issues persist two years after pension transfer regulations introduced

15 November 2023

New data reveals major issues persist two years after pension transfer regulations introduced

Two years on from the introduction of the pension transfer regulations, new freedom of information (FOI) data from the Money and Pensions Service (MaPS) gathered by wealth manager, Quilter, reveals that while thousands of people have potentially been saved from fraudsters since launch, significant issues persist.

The latest figures from MaPS show that more than four out of five (82%) of all amber flags were raised due to either an unknown reason or for a potentially low risk transfer relating to overseas investments. 

Of the 21,250 MoneyHelper Pension Safeguarding Guidance (PSG) sessions conducted since the regulations were introduced two years ago, just under half (45% or 9,578) were conducted with an attendee who did not know the reason why an amber flag had been raised. In addition, nearly two fifths (37% 7,793) were conducted after a flag was raised on potentially low-risk transfers relating to overseas investments.

A primary issue has been the wording around overseas investments. The intention is to flag unregulated and potentially fraudulent investments, but instead catches many legitimate investments in overseas markets and has halted many potentially low-risk pension transfers as a result despite guidance from The Pensions Regulator.

Another key issue has been the lack of information provided to customers on the reason for an amber flag being raised. The new data from MaPS reveals that the reason for 45% of amber flags was unknown to the attendee when they attended a PSG appointment. Not only has this led to difficulties in assessing the effectiveness of the regulations due to gaps in data collection, but arguably it also risks diminishing consumer receptiveness to MoneyHelper Pension Safeguarding Guidance sessions, many of whom will see it as an unnecessary tick box exercise.

Earlier this year the Department for Work and Pensions (DWP) published its long-awaited review of the regulations but, disappointingly, it did little to iron out the issues that have persisted since their introduction. However, the DWP recognised in its review that overseas investments were the most common cause of an amber flag being raised and confirmed it would conduct further work to consider if changes could be implemented to improve the pension transfer experience.

Jon Greer, head of retirement policy at Quilter, says:

“There is no doubt that the pension transfer regulations will have helped save people from fraud, and while it is positive to see such an increase in the number of people receiving scam guidance when there is a real cause for concern, the fact remains that there are far too many unnecessary points of friction within the regulations that have put a dampener on their effectiveness.

“For two years now, the industry has been making the case with the DWP to make meaningful changes to resolve the issues caused by the regulations. Since Quilter’s initial FOI request to MaPS revealed a large number of potentially low risk transfers relating to overseas investments were being needlessly halted, we have continuously called on the DWP to put the issues right. It was hoped that the DWP’s review would resolve the ongoing problems, but disappointingly action in this area is slow.

“Despite the repeated calls for change, there remains a clear divergence between policy intention and the practical application of the law when it comes to the overseas investments wording. The DWP must provide absolute clarity via an update to the broad way in which the rules are currently worded, as the drafting makes no distinction between overseas investments that present a scam risk as opposed to those that do not.

“In addition, the lack of clarity provided to customers, and consequently the data that MaPS can capture, has also left a gap in our understanding of the effectiveness of the rules and increases the potential for consumer disengagement and frustration. The onus must be put on pension schemes to provide clear and accurate information to customers on the reason an amber flag has been raised and making it an explicit legislative requirement would be a sure-fire way to solve the issue.

“In its review, the DWP committed to conducting further work and considering making changes to improve the pension transfer experience. It must now look to resolve these issues as a matter of urgency as consumers are needlessly suffering delays and have been for two years.”