Amber flags and guidance
If an amber flag is present, trustees are required to request the member’s attendance at a MoneyHelper guidance session on pension transfer scams. Upon completion, the member receives a unique identifier from MoneyHelper as proof of session attendance.
Amber flags are where:
- the member has provided a substantive but incomplete response to a request for evidence or information;
- the trustees think that some or all of the evidence provided may not be genuine, or that any evidence required to be provided by the member may not have been provided directly by the member themselves;
- the evidence does not demonstrate an employment link or residency link (only for a transfer to an occupational pension scheme or QROPS);
- there are any high-risk or unregulated investments included in the receiving scheme;
- there are any unclear or high fees being charged by the receiving scheme;
- the structure of investments included in the receiving scheme is unclear, complex or unorthodox;
- there are any overseas investments included in the receiving scheme; or
- there has been a sharp or unusual rise in the volume of transfer requests to the same scheme or involving the same adviser and/or firm of advisers.
Pension safeguarding guidance appointments
Should due diligence checks by schemes reveal any amber flags, members must be asked to attend a MoneyHelper guidance session. Transferring providers will provide information to members on setting up and attending the session independently.
The session will be by telephone and will last around 40 minutes to one hour. MoneyHelper will ask the member questions about why they want to transfer their pension.
After the session, MoneyHelper will send them a summary of the session and a unique identifier number as evidence they have attended.
Red flags that could stop transfers
If there is a red flag, then the statutory right to transfer falls away and schemes could stop the transfer going ahead.
The red flags are where the transferring scheme encounters one of the following:
- the member has not given a substantial response to a request for evidence or information;
- an amber flag has been raised, and the member has not demonstrated that they have attended a MoneyHelper guidance session;
- an unregulated person has carried out a regulated activity in relation to the transfer;
- the member requested a transfer after unsolicited contact (ie cold-calling);
- the member has been offered an incentive to make the transfer; or
- the member has been pressured to make the transfer.
Risk-based approach
The guidance from TPR to providers and trustees is to adopt a risk-based approach in their decision-making process.
In cases where the receiving scheme is not occupational or a QROPS, they should assess whether they possess sufficient information to decide on the transfer or if additional information is needed to make an informed decision.
The guidance also allows for providers to consider maintaining a ‘clean list’ of personal pension schemes and trusted providers, deemed safe based on existing knowledge.
This allows for a streamlined transfer process to schemes on the list without additional inquiry or further due diligence, provided there are no apparent danger signs.
Reviewing the rules
The government pledged to assess the regulations’ effectiveness in achieving their policy aim 18 months after implementation, and the results of that review have now been published.
The DWP initiated a data-sharing initiative with various pension schemes and administrators to collect data and assess the efficacy of the new transfer regulations.
More than 20 pension schemes, administrators, and industry bodies participated in the review, with 11 of them submitting data returns that covered approximately 290,000 completed transfers.
The data found that the majority of transfers in 2022 were completed under the first condition, or under the second condition with no flags present, however inconsistencies were identified in how schemes were applying the regulations.
The qualitative feedback received highlighted issues with two of the flags in particular: the overseas investment amber flag and the incentives red flag.
Both flags are not clearly defined in the regulations, which has led to providers interpreting them in varied ways, resulting in transfers being either incorrectly blocked or unnecessarily delayed.
