A little over a century ago, in an attempt to control a pest of beetles laying waste to the sugar cane crops of Queensland, cane toads were introduced to Australia. It seemed like a good idea at the time.
Unfortunately, the toads multiplied so rapidly that they soon numbered in the thousands. Then there were millions of them. Then there were hundreds of millions. They duly disrupted and destroyed entire ecosystems – although the beetles, ironically enough, got off pretty lightly.
This unhappy tale of best intentions and unintended consequences brings us to the sorry saga of the amber flag. Like the cane toad in Australia, arguably the most controversial component of the UK’s rules for pension transfers seemed like a good idea at the time but turned out to be a bit of a disaster.
Part of the Occupational and Personal Pension Scheme Regulations, the process was brought in back in late 2021. The basic aim was to combat scams by giving trustees and providers more powers to investigate transfers in the event of potential warning signs being triggered.
So much for the ‘best intentions’ element. The ‘unintended consequences’ aspect of the story started to emerge within months. In short: the amber flag fluttered far too frequently. Perhaps most significantly, the colours were automatically hoisted whenever overseas investments featured in a transfer.
The end of an error
The extent of the issue was laid bare as early as January 2023, when a request filed under the Freedom of Information Act revealed 3,019 of the 8,395 amber flags raised during the first 11 months of the new regime were linked to overseas investments. By comparison, complex investment structures were flagged just 211 times.
A similar pattern has endured since, with overseas investments accounting for 35% of all cases between November 2021 and March 20262. This trend has been a source of enormous frustration for investors, advisers, platforms and other stakeholders.
An additional layer of displeasure has come from the suspicion that some providers have been only too delighted to exploit flag-induced delays. Their secret hope, cynics say, is that exasperated investors will ultimately abandon their transfers altogether. This underlines how deeply flawed the system has proved.
Mercifully, the agony should soon be at an end. In response to mounting pressure, the Department for Work and Pensions (DWP) has finally announced proposals to scrap the mechanism and focus scrutiny where it’s actually needed – on genuinely suspicious investments.
As an industry, we might react to this long-awaited development merely by shaking our collective head and wearily declaring: ‘better late than never’. But I feel we should also reflect on the broader implications of the fiasco.
In my view, an important lesson here is that considerable effort is required to ensure pension transfers are both secure and simple. The DWP set out to tick the first of these boxes – which is thoroughly commendable – but in doing so, alas, it completely lost sight of the second.
Rights and wrongs
So, what might an ideal pension transfer look like, not least for the internationally mobile clients who use an investment platform likes ours? Like retirement planning as a whole, it should be as uncomplicated as possible.
To that end, the notion of a single proposition is key. For example, by bringing everything together under one roof, our own Novia Global SIPP helps advisers and their clients avoid the pain of dealing with multiple administrators, trustees, investment providers and sources of accountability.
Straight-through processing is a must from the get-go. In our experience, users want onboarding that offers speed and accuracy, allows documentation to be submitted online and enables progress to be tracked digitally.
Transfer acceptance itself must be super-flexible, catering for a range of existing schemes – including, for instance, UK pensions, QROPS, delisted ROPS and International Pension Plans. The best electronic transfer services, such as Origo, are manifestly geared towards fully optimised transfers between participating schemes.
More broadly, a platform’s users might reasonably expect global payment facilities, good service, cost-effectiveness, multi-jurisdictional protection and sensible regulation. Needless to say, the last of these shouldn’t be in the woefully misguided tradition of the amber flag.
Maybe the other vital lesson here is that policy intervention and regulations can sometimes get things wrong. When all is said and done, that’s life. In the face of such mishaps, all platforms can do is keep striving to get things right.
Chris Skelhorn is sales director at Novia Global
