Transfer delays are frustrating but observing the law is vital

Recently, B&CE, provider of The People’s Pension, has been the subject of false claims that we have been “abusing the transfer regulations”.

The reality is that recent changes in the law governing how pension transfers work have caused legal and administrative problems and we are putting in place workarounds to resolve those problems.

The aim of these regulations, which were introduced last year, was to provide pension providers with the power to protect savers by halting transfers to scam schemes. We continue to strongly support this objective.

The regulations work by requiring providers to “flag” transfers where the signs of a scam are present. The problem is that the drafting of the law doesn’t match the policy intent and we are legally required to flag transfers to providers that are obviously legitimate.

For example, a red flag, which causes the right to a statutory transfer to be extinguished, must be raised where an incentive is present in the transfer. Incentives are a common market practice for non-workplace pension providers and also a common tactic of scammers. The regulations do not adequately distinguish between the two, which means that any transfer where an incentive is present must be red flagged.

We cannot take a pick and mix approach to legislation

There has been a lot written about this problem in the national and specialist press over the last week. We have yet to see anyone credibly argue that we have misread the law. While it’s easy to see how this is frustrating for consolidators who legitimately use incentives, we cannot take a “pick and mix” approach to financial services legislation. We cannot choose which parts of the law to observe and which to disregard. We must follow the law, even when it is inconvenient.

We are putting in place workarounds to deal with this problem. We are working with affected providers, offering three suggestions to speed transfers along:

1. First, where providers are generally using incentives, they may be able to certify that there is no incentive in place for a particular transfer. In that instance, the transfer can proceed as normal.
2. Second, where there is an incentive, they can encourage transferring savers to engage with the scheme’s due diligence processes.
3. Third, our legal advice and the regulator’s guidance is clear that where no statutory transfer is possible, we can consider a non-statutory transfer at the discretion of the trustee. This requires a slightly different transfer process, but we remain committed to making this work with affected providers.

An industry-wide issue

In the longer term though, these actions are merely a sticking plaster over an industry-wide problem. The regulations either need to be changed or providers should stop using marketing incentives that are caught by the regulations. We would like to see a discussion over which option to pursue ahead of the planned review of the regulations set for 18 months’ time.

For now, it’s vital that the pensions sector works together within the law instead of criticising those scheme trustees who are simply observing their legal obligations.