The Pensions Regulator has issued guidance to assist trustees and scheme managers navigate the new duties. In that guidance the Regulator states “You should take a risk-based approach to your decision making based on the information you obtain during your due diligence process“. This sentence helps to sum up the ever-growing burden on trustees. The level of due diligence which trustees and their administrators will need to carry out is about to increase exponentially.
I’ve seen many cases where the member is seeking redress against the trustees after ignoring the scams information they’ve been provided – in some cases they’ve even signed a copy of the Regulator’s “Scorpion” leaflet to say they’ve read it and it doesn’t apply to their transfer. It is clear that the added level of due diligence, and the delays this will inevitably cause to completing transfers is going to result in protracted discussions, frustration and ill-feeling between members and the guardians of their pension pots. Managing that process is going to be like walking a tight-rope and will rely on trustees and their advisers being well-prepared and having suitable processes in place.
The Pensions Regulator is also asking trustees, providers and administrators to officially pledge to do more to protect scheme members and follow the principles of the Pension Scams Industry Group (PSIG) Code of Good Practice (the pledge form can be accessed and completed on the Pensions Regulator’s website).
Whilst this is a step in the right direction it isn’t going to be a magic solution. The regulations won’t help the thousands of members who have already been duped out of their pensions – a situation which often remains undetected by the member for years – making their position all the more devastating.
Of potentially even greater concern, is that the new transfer provisions will not provide any protection in relation to non-statutory transfers. Trustees will become more educated and aware of scam-risks, and there is the potential that they can use that awareness to enter into a dialogue to help educate and warn members seeking to make non-statutory transfers, however the trustees won’t have the power to stop non-statutory transfers. Why is this of concern? There are two main reasons:
- members do not have a statutory right to transfer their benefits if they are within one year of their normal retirement. Scammers targeting members within one year of their normal retirement date will encourage members to make non-statutory transfer requests; and
- members whose statutory transfer requests are declined under these new protections may still apply for a non-statutory transfers.
I would urge trustees to review their transfer provisions and to discuss these risks with their advisers. It may be that they want to amend their schemes governing provisions relating to non-statutory transfers. I suspect amendments will be rare, but it is vital that trustees understand how their non-statutory transfer provisions work – most are likely to be discretionary – thus adding yet a further burden on the trustees.
Questions for trustees to consider:
- are you aware of the implementation date? (30 November 2021)
- are your scheme administrators aware of these extra duties and do they have procedures, policies and the resource to comply with these requirements?
- do the trustees have procedures in place and the resource to consider cases where there are amber or red flags? Do they feel comfortable in making those decisions? Do they need training?
- are you communicating with your members on this subject? Forewarned is forearmed. With the increasing burden on trustees it is important you take all the action possible to reduce the risk of your members falling foul of a scam.
- have you discussed the cost-implications of this extra work with your administration team?
- are you familiar with your scheme’s non-statutory transfer provisions and are you comfortable with how you will deal with any such requests?
These added protections will inevitably save numerous members from losing their hard-earned pension savings – for which they will no doubt be thankful. I fear it is also inevitable that these new duties will result in significant added workload and pressure on trustees and administrators to process transfers in a timely manner and pose the increased risk of protracted discussions with members who are insistent on transferring to risky pension arrangements.