The Government has consulted on changes to the regulations governing statutory transfer values.
Background
For transfers to most schemes, trustees need to decide whether there are any "red flags" or "amber flags" as defined in the legislation. A red flag is an absolute bar to the transfer. An amber flag means that the transfer can only proceed if the member first takes "scams guidance" from the Money and Pensions Service (MaPS). Transfers to certain types of scheme are exempt from the requirement to consider whether red or amber flags are present, namely transfers to public service pension schemes, authorised master trusts and authorised collective money purchase schemes.
For transfers to non-exempt occupational schemes, trustees are required to request evidence that the member has an “employment link” with the scheme. The regulations set out detailed requirements that must be met in order to satisfy the employment link requirements. The inability to satisfy the employment link requirements is an amber flag.
Proposed changes
The consultation proposes an additional category of scheme for which trustees will not need to consider the presence of red or amber flags. This is a scheme which the trustees consider on the balance of probabilities to be a “reputable scheme”. The consultation proposes that the regulations will include a non-exhaustive list of factors to which trustees may have regard when assessing whether a receiving scheme is reputable, eg whether there is an existing relationship with the receiving scheme, and the nature and risk profile of the scheme’s investments. The draft regulations published alongside the consultation do not themselves contain a list of risk factors.
The consultation proposes a new red flag where the evidence provided by the member does not demonstrate an employment link. This will apply where the proposed transfer is to a non-exempt occupational scheme. The wording of the draft regulation on this point appears somewhat circular, but it is clear from the consultation that this change has been prompted by concern that transfers to small self-administered schemes (SSASs) are being used to facilitate fraud.
The consultation proposes that a member will not be required to take scams guidance where the member has already taken such guidance in the previous 12 months. This is to avoid the scenario of a member being forced to take scams guidance multiple times within a short period when transferring several pension pots into a single scheme for consolidation purposes. The consultation also proposes the removal of overseas investments in the receiving scheme as an amber flag. The consultation notes that the presence of “high risk” or unregulated investments is in any event an amber flag.
