Legal briefing | |

Pension scams: new statutory transfer right restrictions


The Government has laid regulations to restrict individuals' statutory transfer rights in specified circumstances, with the aim of helping trustees to stop scam transfers.

The legislation has effect in relation to applications for DB transfer value statements of entitlement or DC transfer requests made on or after 30 November 2021.  Trustees who make statutory transfers need to ensure that their transfer processes and communications are aligned with the legislation.  Schemes that have a discretionary transfer power may have more flexibility but many of the new measures will in any event be considered good practice.


In some circumstances, highlighted by the 2016 case of Hughes v Royal London (see WHiP Issue 56), trustees have been obliged to comply with an insistent member's transfer request despite having strong suspicions that the receiving scheme is a scam arrangement.  This is typically because scam operators have created arrangements with a view to satisfying the conditions for a statutory transfer and trustees then have no discretion over making the transfer.

The pensions industry has for some time called for trustees to be given the ability to block suspected scam transfers, which can cause financial devastation for victims.  The Pension Schemes Act 2021 (see our briefing note) amends the statutory transfer conditions under the Pension Schemes Act 1993 in circumstances where there might be a scam, removing the statutory right in prescribed circumstances.  Although this action is welcome, trustees need to be aware that with this new ability comes responsibility: they will have new obligations to check transfer requests to ensure that the statutory transfer conditions are met, including requirements to give new information to members who seek a transfer.  This is likely to involve the need for judgment calls on an ongoing basis.

Schemes that include a discretionary transfer power may be able to be more flexible but should still perform appropriate due diligence on transfer requests.

Statutory transfer right restriction

The regulations that have now been made effectively disapply the statutory transfer right where there is a 'red flag' transfer scam risk.  This includes (among other things) where there is an 'amber flag', indicating a possible scam, and the member does not take one-to-one guidance from MoneyHelper (part of the Money and Pensions Service).  

This is achieved by introducing conditions to the statutory right: a member will now only have a statutory right if either the 'first condition' or the 'second condition' is satisfied (see the sections below).

The regulations apply to applications for a DB statement of entitlement and DC transfer requests made, in either case, on or after 30 November 2021. 

The legislation therefore imposes new obligations on trustees to determine if there is a statutory transfer right in specified circumstances.  Before a statutory transfer can be made, there are yes/no decisions to be made about whether specified criteria are met or, in some cases, likely to be met.  Schemes with discretionary transfer powers may still be able to use that transfer power, if appropriate.

There are detailed provisions requiring information to be given to members at particular points in time, which are not covered here.

'First condition': safe schemes

Where the first condition is satisfied, there is no transfer right restriction and so the transfer must go ahead.  The first condition is satisfied where the transfer is to a public service pension scheme or to an authorised master trust.  In the future it will also be satisfied where the transfer is to an authorised collective money purchase scheme (currently there are none).

Trustees have to establish this beyond reasonable doubt and can only make enquiries of the member with a view to establishing the identity of the scheme.  Transfers to these schemes can therefore proceed as they do currently.

It was originally proposed that this would condition would also cover schemes operated by authorised insurers.  Following concerns about fair competition in the personal pension market, this has been dropped in the final regulations.

'Second condition': red and amber flags

The second condition applies to transfers to all schemes that are not within the first condition.  It is satisfied where there are no 'red flags': the transfer must then go ahead.  Amongst other circumstances (see below), there is a red flag where there was an 'amber flag' and the member has not demonstrated that they have taken guidance from MoneyHelper.

The policy intent is that trustees can have a 'clean list' (the Regulator's term) of personal pension schemes and drawdown providers (but not occupational pension schemes, for reasons explained below) that are considered safe based on what the trustees know about them already, so that trustees may feel comfortable, in the absence of any apparent danger signs, in making a transfer to a scheme on that list without the need for further enquiry or any more due diligence than at present.  The list could, for example, include household name FCA-authorised pension providers and equivalent reputable providers.  The provisions of the regulations as drafted, however, make it difficult to use 'clean lists' for statutory transfers – please seek advice from your usual pensions contact at Travers Smith if you are considering using a 'clean list' for statutory transfers.

Red flags

The existence of a red flag means that there is no statutory transfer right.  The red flags are (in broad terms) where:

  • (as noted above) there was an amber flag (see below) and the member has not demonstrated that they have taken MoneyHelper guidance
  • the member has not provided a substantive response to a request for evidence or information
  • an unregulated person has carried out a regulated activity in relation to the requested transfer
  • the transfer request is further to unsolicited contact via direct marketing
  • the member has been offered an incentive to make the transfer (other than by the trustees or employer)
  • the member has been, or consider that they have felt, pressured to make the transfer

Many of the terms here have particular definitions in the regulations.

Amber flags

The presence of an 'amber flag' means that the member must be referred to one-to-one MoneyHelper guidance.  As noted above, where there is an amber flag and the member does not demonstrate that they have taken MoneyHelper guidance, that is a red flag and there is no statutory transfer right.  MoneyHelper will issue a confirmation with a unique reference number after a guidance session has been completed: trustees will need to see this before proceeding with the transfer.

Where the receiving scheme is an occupational pension scheme, trustees must ask the member to demonstrate a genuine employment link, by reference to various criteria.  Where it is a QROPS, the member must be asked to demonstrate either (if it is an occupational pension scheme) an employment link or, again by reference to various criteria, a residency link to the relevant overseas jurisdiction.

There is an amber flag where:

  • the member has provided a substantive but incomplete response to a request for evidence or information
  • the trustees think that some or all of the evidence provided may not be genuine or may not have been provided directly by the member
  • (only for a transfer to an occupational pension scheme or QROPS) evidence does not demonstrate an employment link or residency link
  • there are any high risk or unregulated investments included in the receiving scheme
  • there are any unclear or high fees being charged by the receiving scheme
  • the structure of investments included in the receiving scheme is unclear, complex or unorthodox
  • there are any overseas investments included in the receiving scheme
  • there has been a sharp or unusual rise in the volume of transfer requests to the same scheme or involving the same adviser and/or firm of advisers

Again, many of the terms used above are defined in the regulations.  "Included in" refers to investments that the receiving scheme will make with the transferred funds immediately after the transfer is made or is already making with the savings of other members of the scheme.  It is unclear if or how the requirement to consider other members applies where the receiving scheme is a contract-based personal pension.

It is very likely that a receiving scheme may include at least some overseas investments for the transferring member or at least one other member, depending on how the requirements should be interpreted for contract-based arrangements.  This may mean that many transfers could be said to give rise to an amber flag, which would mean that a referral to MoneyHelper is required.  Please seek advice from your usual pensions contact at Travers Smith if you would like to discuss this issue further.

Discretionary transfer powers

Importantly, none of this restricts a scheme's discretionary transfer power, if it has one.  The Regulator says that any such power should not be used to avoid carrying out due diligence.  We can see, however, that the use of a discretionary power may potentially be a way of avoiding having to refer a member unnecessarily to MoneyHelper where the regulations would technically require it (if it were a statutory transfer) but where it appears obvious that there is no scam risk.  This may be a route which some schemes' trustees may consider if they wish to operate a 'clean list' of the kind envisaged by the Regulator and the Government. 

Other scam prevention measures

It is still, of course, good practice to warn members of transfer and other scam risks, which also include decumulation scams.  Schemes generally do this by including Pensions Regulator and ScamSmart literature when responding to transfer enquiries and communicating decumulation options.  The Regulator also asks schemes to include warnings on their website and with benefit statements.

Trustees are strongly encouraged to report suspected pension scams to ActionFraud.

Data Protection

The Government consultation response advises trustees to make members aware of what additional data is being collected and the purpose for which it will be processed.  This requires a review of the scope of existing data processing documentation and the possible need for amendments to include reference to the new information that may be collected and processed.

Link to source materials

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