Tim Gosling: Trustees must comply with the law.
Tim Gosling says issues with the recent transfer regulations are an industry-wide issue that needs resolving through regulatory change.
It's now no secret that the implementation of the recent transfer regulations has been difficult for occupational schemes.
The aim of these regulations was to provide pension providers with the power to protect savers by halting transfers to scam schemes. We continue to support this objective, but the legislation is having serious side-effects. The problem is a mismatch between the law and the policy intent, with legal firms across the pensions industry advising that common marketing practices, such as the use of transfer incentives, are now caught by the new regulations. This is forcing pension schemes, like us, to carry out additional due diligence, which can slow the transfer process down for members.
The regulations require the trustees to raise "red" and "amber" flags where certain conditions are present in a pension transfer which includes the use of an incentive. When this happens, the right to a statutory transfer is extinguished and providers are required to perform additional due diligence in order for a non-statutory transfer to progress.
The Department for Work and Pensions and The Pensions Regulator (TPR) have issued a joint statement in an attempt to clarify the situation, but the regulations and the guidance continue to require us to carry out additional due diligence where an incentive is offered. Indeed, in the detail, the guidance states that, where incentives are present a non-statutory transfer is the way forward.
It's easy to see how this may be frustrating for other providers who use incentives. But we, and other providers, have been accused of holding on to customers' money unjustifiably and abusing the regulations, which is categorically untrue. Trustees cannot take a "pick and mix" approach to financial services legislation: they have to comply with the law.
This is an industry problem, that runs far wider than the pension providers repeatedly mentioned in the media. Transfers are still going ahead, but where providers choose to continue using marketing initiatives caught by the regulations, it causes additional administrative work and cost for ceding schemes and slows the transfer down for savers.
We are actively pursuing a constructive approach in the best interest of our members, to ensure we process their transfers as quickly as possible while also fulfilling our legal obligations. We have contacted providers, known to offer incentives, with three suggestions to speed transfers along:
First, they certify to us where an incentive is not present in a transfer so that we can process statutory transfers. Second, they can encourage members to complete our due diligence process. Third, that where no right to statutory transfer exists due to the operation of the transfer regulations, our trustee may make a non-statutory transfer at their discretion subject to completion of appropriate due diligence checks.
In the longer term though, these actions are merely a sticking plaster over an industry-wide problem. The regulations either need to be changed or providers can choose to stop using marketing incentives that are caught by the regulations. These solutions are out of our hands - the DWP and TPR need to address this issue and we're keen to work with them on this.
For now, the pension sector needs to work together within the law instead of criticising those scheme trustees who observe their legal obligations.
Tim Gosling is head of pensions policy at B&CE, provider of The People's Pension
