43: The Pension Schemes Act 2021: restrictions on statutory transfers
In previous blogs on the Pension Schemes Act 2021 (the Act) we’ve looked at increased powers for the Pensions Regulator and changes to an individual’s right to transfer under the DB funding scheme. The Act also lays the groundwork for changes to the statutory transfer regime with the detail to be set out in supporting regulations. In this blog we consider what is known of the proposed changes.
What are the proposed changes?
The Act amends the Pension Schemes Act 1993 to give the government powers to introduce regulations that will prevent members from exercising their statutory right to a transfer unless certain conditions are met. The amendment is expected to come into force in Autumn 2021 along with the supporting regulations. The government will consult on the draft regulations before they come into force, although it is not clear when these will be published as yet.
The conditions are likely to include:
- evidence of the member’s place of residence.
- evidence the member has a genuine employment link with the receiving scheme. The 2020 Bill Memorandum states that this may include:
- a requirement for the member to provide payslips and bank statements covering a three-month period demonstrating their level of earnings in each of those months was at least equal to the national insurance lower level earnings limit. The idea here is that this earnings threshold mitigates against the risk criminals will make a fraudulent transfer appear legitimate by making payments of nominal earnings, but is not set so high as to disadvantage lower paid pension members; and
- a requirement for transferring scheme trustees to request information from the member’s employer. This may include, a statement that they employ the member and that they participate in the pension scheme the member’s transfer value will be paid to.
- evidence that the member has obtained information or guidance about exercising the right to a statutory transfer value from a prescribed person in a prescribed case;
- an obligation for trustees to notify members of these conditions; and
- for transfers to qualifying recognised overseas pension schemes (QROPS), the 2020 Bill Memorandum sets out the regulation will likely require the member to provide evidence that they have lived in the same country where the QROPS is located for at least six months (although this may be flexed where the member is resident in the EEA so as to allow the scheme and the member to be based in different countries provided both are in the EEA).
The proposed changes are intended to further limit the circumstances in which a member could become a victim of a pension liberation scam. They build on the requirements for active companies to make new scheme registrations introduced in 2018, the ban on cold calling introduced in 2019 and the various campaigns, guidance and codes of good practice issued by the Pensions Regulator, the FCA and industry groups.
Trustees will already have in place robust processes to identify situations in which their members may be subject to a pensions liberation scam. However, they are often left in a difficult position when a member requests a transfer to a scheme that looks suspicious but they are under pressure to reach a decision because of the requirements and timescales for acting on a statutory transfer request. It is fertile ground for member complaints. These new conditions should give trustees further tools to stop suspicious looking transfers and trustees comfort that they exempt from the statutory obligations and timescales for payment of statutory transfers where the prescribed conditions are not met.
It is intended that members who do not qualify for the statutory right to transfer because they do not meet the new conditions will still be able to seek a non-statutory transfer of their pension benefits subject to scheme rules allowing this. However, such transfers will most likely be discretionary in nature under scheme rules and it is difficult to see circumstances in which trustees will make a payment where the prescribed conditions are not met.
The conditions headlined in the Act appear to be directed largely at transfers to occupational pension schemes but the government has stated that it considers the new powers to be wide enough to put in place conditions and protections against pension scams more generally.
Indeed it has deliberately avoided being prescriptive in the Act and is using regulations because they are better suited to capture operational details and can be more easily adapted to keep up with the evolving threat of pension scams.
Trustees are advised to look out for regulation later in the year and continue to raise awareness with their members about the threat of pension scams.