The Government has published its consultation on pension scams. Proposed restrictions on the statutory right to transfer pension benefits and on the ability to establish a scheme with a dormant company as scheme employer could have major implications for SSASs.
The consultation also contains the details of a proposed ban on pensions cold calling. In a separate measure, the Transfers and Re-registration Industry Group (TRIG) has published a consultation on a set of proposals aimed at improving the transfer process between savings and investment providers including SSASs and SIPPs.
Limits on statutory right to transfer
The Government proposes that the statutory right to a transfer value would be restricted to circumstances where:
- the receiving scheme is a personal pension scheme operated by an FCA authorised firm or entity;
- a genuine employment link to the receiving occupational pension scheme could be demonstrated, with evidence of regular earnings from that employment and confirmation that the employer has agreed to participate in the receiving scheme; or
- the receiving occupational pension scheme was an authorised master trust.
The consultation states transfers in other circumstances would still be permitted at the trustees' discretion in accordance with the scheme rules, and that "The government would expect trustees or managers to make all reasonable efforts to agree a transfer request if there was no reason not to do so (i.e. if the receiving scheme did not appear to be a scam)".
The consultation goes on to state:
"An alternative to limiting individuals’ statutory right to transfer could be to require ‘insistent’ scheme members (who wish to continue with the transfer, despite being warned of the risks) to sign a declaration similar to the example “discharge letter” in the Industry code of practice on combating pension scams. This letter could confirm that the member had understood the scam warnings given to them, and the nature of the risks that they may be exposed to. This letter could also be used to limit any recourse the individual has to the ceding scheme, in the event that the receiving scheme is a scam. The government would welcome views on whether this is a suitable alternative to limiting individuals’ statutory right to transfer, and in particular if it could be implemented in a way that would not reduce the requirement on trustees to undertake due diligence on receiving schemes.
"Such an approach could be coupled with a statutory cooling off period, whereby the ceding scheme would delay all transfers, for example by 14 days, to allow the member to reconsider their decision to transfer. The government would welcome views and evidence on the effectiveness of cooling-off periods as a means of combating scams."
The consultation itself acknowledges that a regular earnings link "could prove difficult to demonstrate in some legitimate circumstances" such as self-employment or a zero hours contract. It states, "The government recognises that these proposals would need to be carefully balanced with ensuring that trustees or managers are not refusing transfers in order to retain pension pots, to the benefit of the scheme and to the detriment of members; and will consider whether it might be appropriate to provide some form of statutory discharge for trustees in such circumstances."
Comment on proposed limits to statutory right to transfer
The need to demonstrate a regular earnings link is likely to be problematic in the context of many transfers to SSASs where members are commonly the directors of an owner-managed business (or close family members of such persons) who may not have a regular pattern of earnings from the business. The need to demonstrate a regular pattern of earnings from the employment might also be problematic in the context of a company that has been newly established following a reorganisation.
The proposal to restrict the statutory right to a transfer, with transfers in other circumstances being at the transferring scheme's discretion, raises the risk that scheme providers decline to make transfers due to it not being in their own business interests to do so, particularly where the provider's business model is based on maintaining a closed book of business. The alternative proposal of requiring members to sign a disclaimer rather than limiting their statutory transfer rights therefore appears preferable.
Restrictions on establishing new schemes
The Government is concerned that SSASs are being established for use as vehicles in pension scams. It is proposing to change the law to require all new scheme registrations to be made through an "active" company, ie a company that is not considered dormant for corporation tax purposes. The consultation seeks views on whether there are any "legitimate circumstances" in which a dormant company might wish to register a new pension scheme.
Comment on restrictions on establishing new schemes
If the Government implements its proposal to prevent a dormant company establishing a scheme, this could make it more difficult to deal with pension arrangements on a corporate reorganisation. Where a member has an existing SSAS with one SSAS provider and wishes to move his pension arrangements to another, this could also be problematic if the new SSAS provider's standard practice in such a scenario is to set up a new scheme on its own standard form documentation and receive a transfer, rather than taking over responsibility for an existing SSAS.
Ban on cold calling
The Government proposes to enact legislation to ban cold calling in relation to pensions. The scope of the ban will be broadly drafted, but there will be an exemption for an individual's existing pension provider, or a financial advisor with whom an individual has had previous appointments.
Comment on consultation generally
This consultation potentially has major implications for providers of SSASs. SSAS providers should understand the implications for their own business, and may wish to consider responding to the consultation, which closes on 13 February 2017.
Transfers and Re-registration Industry Group consultation on improving transfer process
The Transfers and Re-registration Industry Group (TRIG) comprises representatives of eight trade bodies including the Association of Member-Directed Pension Schemes (AMPS) and the ABI. Following discussions with the FCA, TRIG undertook a review of the effectiveness of processes for transferring and re-registering assets between providers. This covered a range of tax wrappers and savings products, including SIPPs and SSASs. The current consultation contains proposals arising out of that review. The FCA, Pensions Regulator and DWP have been consulted on the proposals. The consultation proposals are grouped under the following five key categories:
Create clear service expectations
It is proposed that each firm should adopt a maximum "48 hour standard" for completing each step of a transfer process. This would mean that provided an instruction is received before 5.30pm, the firm would process its step before 5.30pm on the second business day following receipt of the instruction. Parties would be allowed to "stop the clock" for legitimate delays such as a need for due diligence for scam and money laundering prevention purposes, or a statutory requirement for the client to take financial advice. TRIG's proposed definition of a "step" is "the execution of a complete instruction received and the dispatch, where necessary, of the next complete instruction.
Publish service level management expectations
It is proposed that the industry should develop a common reporting mechanism for all transfers, with a register of participating organisations made available to the public. Participating organisations should be required to report on the total number of transfers they have handled and the number of times they have completed a step in the process, with details of the percentage of steps completed within the 48 hour standard. TRIG recommends that reporting should be established from March 2018 (or 12 months after concluding the consultation). The management information would then be published 6 months after this date.
Address significant process improvement opportunities
The consultation identifies single employer trust-based pension schemes (particularly small ones) as an area requiring particular focus to improve transfer standards. It identifies discharge forms as a particular area for review. One "quick win" identified is to aim to remove cheques from the transfer process by March 2018. TRIG proposes the establishment of a practitioner forum with the remit of resolving key issues in the transfer process, with the first issues to be addressed being agreed in Spring 2017 as part of the consultation process.
Create common industry standards and good practice guidelines
It is proposed that common industry standards should be developed, either by the industry contracting with a selected provider to provide the market infrastructure to develop agree standards, or by having open standards enabling any provider to put forward solutions that meet these standards. The consultation says that final decisions on the preferred approach will be taken by September 2017, with the timetable for the next steps being contingent on the final recommendations.
Introduce an independent governance and oversight body
It is proposed that a new governance and oversight body should be created to oversee the initiative proposed by the consultation, and that this will be funded by the financial services industry as a whole on an annual fee basis, with fee levels set by reference to the size of the organisation and the role it plays in the process. Final recommendations on the proposals will be made in Spring 2017 with the aim being to have the governance body in place by September 2017.
The consultation closes on 31 January 2017.
Comment on the Transfers Consultation
There are no immediate plans to enact legislation to give the consultation proposals statutory force. However, the consultation has been carried out following consultation with regulators and the authors of the consultation anticipate that if the initiative is seen as unsuccessful, there is a likelihood of regulatory intervention from the FCA in future in relation to the firms it authorises.
SSAS and SIPP providers should consider how the proposed measures would impact them.