A government proposal to limit the right to transfer pension funds amid increasing scam activity has been welcomed by the industry.
The plans set out in a consultation document on 5 December would limit the statutory right to transfer to some occupational schemes to crack down on one of the main routes used to access savings through a fraudulent scheme.
It comes after the industry has being urging the government to make it easier for providers and trustees to block transfers where they are concerned about the receiving scheme.
Fears over fraudulent transfers have intensified this year after Royal London lost the right to block a suspected liberations transfer in a landmark ruling at the High Court in January.
The government said in light of this case and the pension freedoms which are approaching their second anniversary next April, it was the right time to consider new legislative restrictions to limit transfer rights.
According to the consultation, a statutory right to a transfer would exist only where:
- The receiving scheme is a personal pension scheme operated by a firm or entity authorised by the Financial Conduct Authority
- 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
- The receiving occupational pension scheme was an authorised master trust
Barnett Waddingham senior consultant Malcolm McLean said: "Although precise details are somewhat lacking, proposed wider action to limit the statutory right to a transfer to some occupational schemes is especially welcome, as is the plan to make it harder for fraudsters to open small schemes.
Pinsent Masons pensions expert Ben Fairhead believes introducing a genuine employment link to a receiving scheme would make it "much more difficult" for scammers to exert pressure on trustees to transfer into suspicious schemes.
"The devil will be in the detail of working out what a "genuine employment link" and "regular earnings" look like - but any change in this area is likely to be an improvement on the current legal position. Recognising and tackling the issue of dormant companies that are all too often used as vehicles for pension scams is similarly encouraging.
"There will no doubt be a lot of debate generated about the proposed changes and some contrasting views. However, there will have to be some compromise as leaving the law as it currently stands is making it too easy for pension scammers."
The plans were also praised by Dalriada Trustees trustee representative Mike Crowe, who said: "I was pleased with these developments. There was nothing which allowed the transferring scheme to check the receiving scheme was legitimate. The inclusion of a genuine employment link should not be difficult to prove if it does exist. It will be interesting to see what the government considers as valid proof.
"Where it becomes difficult is where you have the self-employed and the link is more tenuous between the employer and the individual. If you asked what solution I have for this, I don't have one.
However, some pointed out that there might now be a window of opportunity for scammers after yesterday's announcement and before law changes are introduced.
Crowe warned scammer will look for opportunities: "There is a possibility we may see an uptick in the number of scams. If the government can do something it would be great."
Fairhead said it would be sensible for the government to consider interim measures to prevent an upsurge of activity.
The consultation is open for 10 weeks and closes on 13 February 2017.
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