Making trusted transfers easier doesn't mean they are right for members

The DWP's proposed amendments to the regulations will change the traffic-light transfer conditions which were introduced back in November 2021 as well as broaden the circumstances in which trustees can go ahead with a transfer without engaging enhanced due diligence – allowing them to make a transfer to a scheme where they are satisfied, on the balance of probabilities, that the scheme is "reputable".

As part of the measures, the current amber flag in relation to overseas investments will likely also be removed – a move that is likely to be very much welcomed by the industry as this amber flag has been blamed for causing unnecessary delays to transfers.

But, while the proposed regulations make it easier to switch between reputable schemes, they won't necessarily make it the right thing for people to do.

There are still too many issues and concerns around people switching schemes for the wrong reasons or not really understanding the value of the offerings they are switching to.

And then there is the issue of transfer incentives.

Offering a financial inducement, bonus or unauthorised benefit to persuade a member to transfer their pension triggers a red flag under the current regulations.

While the government has decided to keep this red flag in place (despite some expectations it would be downgraded), under the proposed amendments trustees will be able to go ahead anyway should the scheme it is transferring to be deemed reputable.

Nearly two years ago, I wrote about the size of the pension transfer incentives that were then on offer by reputable schemes – highlighting the size of incentives on offer to people transferring their pension.

These deals don't seem as prevalent today and aren't paying quite as much out, but they certainly still exist.

A cursory glance through the internet today showed a £200 cashback deal with Interactive Investor, an Aberdeen business, as well as cashback of up to £1,500 for transferring to Charles Stanley Direct – both of which are providers of repute that should make it onto a trustee green list.

Source: https://www.ii.co.uk/

Source: https://www.charles-stanley.co.uk/services/invest/diy/online-investing/loyalty/cashback-offer-terms-conditions. Note: The cashback applies to transfers to a general investment account and ISA in addition to a SIPP.

As I mentioned in my article in August 2024, I'm not qualified to opine on whether a pension with Interactive Investor, Charles Stanley Direct or any other personal pension provider is better value than the average workplace pension scheme.

But I do wonder whether, even with value for money (VfM), the average member will be able to understand if they are getting good value from such a transfer.

They will, however, be able to understand the value of a £200 or £1,500 cashback incentive.

While it is great to see the DWP is simplifying legitimate transfers, it is no use people being able to move quickly from a good value scheme to one with a poorer value offering.

Hopefully VfM will fix this issue. If it doesn't – and people end up getting poorer outcomes as a result – then we really do need to do some more thinking on this.

Jonathan Stapleton is editor of Professional Pensions

Email him at: [email protected]

Follow him on LinkedIn at: www.linkedin.com/in/jonathanstapleton

This is an expanded version of a comment posted on LinkedIn yesterday (10 June).

This article is for an audience of pension scheme trustees, managers and other industry professionals.

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