Four-out-of-five (80%) of all pension transfer amber flags were raised for either an unknown reason or for a potentially low risk transfer relating to overseas investments, according to a freedom of information (FOI) request made by financial services giant Quilter.
The data from the Money and Pensions Service (MaPS) shows that of the 8,395 MoneyHelper Pension Safeguarding Guidance (PSG) sessions that were conducted since the regulations were established in November 2021, nearly half (44% or 3,670) were conducted for an ‘unknown’ reason, while more than a third (36% or 3,019) were conducted after a flag was raised on potentially low-risk transfers relating to overseas investments.
Pension transfer amber flags raised between December 2021 - October 2022
| Reason for amber flag | Number of amber flags raised |
|---|---|
| Complex investment structure | 211 |
| Evidence provided is not genuine | 119 |
| High risk/unregulated investments | 458 |
| High volume to the same scheme | 42 |
| High volume with the same financial adviser | 42 |
| Overseas investments | 3,019 |
| Unclear/high fees | 834 |
| Unknown | 3,670 |
| Total | 8,395 |
During the first year of the regulations, MaPS has seen huge growth in the number of people requiring guidance appointments to make sure they are protected from fraudsters.
But Quilter said that the current drafting of the Department for Work and Pensions’ (DWP) rules is not specific enough and has led to many pension savers being forced to take guidance before they are able to make even a low-risk transfer.
The firm said: “For example, triggering a scam guidance session where the receiving scheme offers a range of funds that may have exposure to shares in overseas companies, like those in the S&P 500. What’s more, the lack of detail provided to MaPS with regards to the reason for an amber flag being raised has led to difficulties in assessing how effective the regulations are.”
Clarification
Within the FOI request, Quilter asked for clarification on whether MaPS would ever consider requiring confirmation of the specific reason why an amber flag was raised. Making this a requirement of booking a guidance session would help improve both the customer’s understanding as well as the data collection on the reasons for referral.
MaPS said: “There is no requirement within the regulations for pension schemes to inform their members which flag(s) has been identified during their due diligence process. The only requirement is that they tell their members if a flag(s) is identified. At the request of DWP we will continue to record if our customers have been informed of the flag identified by their scheme, but we do not anticipate the number of unknown flags to change significantly. This has no impact on the guidance session delivered to our customer.
“As part of the guidance session, we do ask our customers if they are aware of which flag has been raised and if known this is recorded as part of our MI. A large proportion of our customers are not aware of the particular flag or are unwilling to disclose this to us – this is recorded as unknown on our records.”
Quilter added: “This confirmation from MaPS is a real positive as it shows it proactively gathers information from the customer on the reason for the amber flag. However, given the significant number of ‘unknowns’, this would suggest there may be a lack of information being provided to members by pension schemes when an amber flag is raised.
“What’s more, there have been reports of significant delays in the facilitation of pension transfers by administrators, as well as issues in booking a MoneyHelper guidance session in a timely manner which have caused problems for advisers and clients alike. The DWP is committed to conducting a full review of the regulations within 18 months of them being adopted, leaving them with less than six months to put right the current issues.”
Call for action
In a bid to improve the flag raising framework, Quilter is calling on the DWP to “consider making it an explicit legislative requirement for all pension schemes to provide clear and accurate information to customers on the reason an amber flag has been raised within its review”.
Also, the resource available for MaPS guidance sessions “must be bolstered to ensure customers are seen within a reasonable timeframe to help make the process as stress free and efficient as possible”, the firm added.
It said these changes could make a “considerable difference” to customer receptiveness to MaPS guidance sessions and will also help with the assessment of the effectiveness of the regulations by “significantly reducing – if not eliminating entirely – the number of ‘unknowns’”.
Positive outcomes been ‘watered down’
Jon Greer, head of retirement policy at Quilter, said: “There should be no doubt that the first year of the new pension transfer regulations has helped save people from fraudsters and has given pension scheme trustees and managers real power to safeguard people against pension scams where historically they could only look on in helpless paralysis.
“We applaud the MaPS for the service they provide. However, the positive outcomes have been somewhat watered down by issues faced in the practical application of the rules, as well as a potential lack of information being provided to members which leads to weakened data collection and difficulties in assessing the effectiveness of the regulations.
“We have known for some time that the lack of clarity in the legislative drafting has resulted in a clear divergence between policy intention and the practical application of the law, but our latest correspondence with the Money and Pensions Service shows the issues could also lie with insufficiently clear disclosure to members.
“While there is no legal requirement that pension schemes inform members on which flags have been identified, the guidance provided by The Pensions Regulator is that it expects schemes to do so, and it would be remiss of a scheme not to outline any concerns it has as not doing so would leave a customer unsure of how to act.
“However, at present almost half of people who receive an amber flag on a pension transfer may not know the reason for the delay – or at the very least are unwilling to share that information with MaPS – and are instead added to the growing list of ‘unknowns’. This could result in them being less receptive to the guidance they receive as they simply do not understand the need for it.
“What’s more, we have heard from advisers that those clients in need of a guidance session from MaPS are having difficulties in booking an appointment within a timely manner which may suggest MaPS may not have the resource required to meet the current level of demand – much of which may be unnecessary given the high level of overseas investments related ambers flags still being raised.
“While these ongoing issues have caused difficulties in the last year, it is clear the DWP is aware of them and understands the need for clarification. It is vital that the DWP’s ongoing review and subsequent report goes far enough to fully address and resolve the ongoing issues as soon as possible as Maps is a valuable resource which needs to be used efficiently.
“Therefore, we ask that the DWP seriously considers making it a legal requirement for schemes to provide their members with clear and accurate information on the reason for an amber flag being raised within this review.”
