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New trustee powers to prevent scam transfers - are we tackling the problem the wrong way round?
Author Philip Hodges Posted on December 02, 2021 08:50
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The new trustee powers to prevent scams came into effect at the start of December 2021. Whilst this is very welcome, does this actually tackle the problem at the wrong stage of the member journey?

The regulations introduce a system of red and amber flags, giving trustees the power to refuse transfers where there's a heightened risk it may be part of a scam. 

Any new powers to prevent scams are highly welcome. If one scam transfer is halted due to these powers, it should be heralded as a success.

However, for nearly all defined benefit transfers to take place, advice is a legal requirement. A scam transfer can’t happen where good advice from an experienced transfer adviser on an appropriate receiving vehicle has been provided and followed. Given this, should we be looking to address the issue earlier? 

The key issue appears to be not sending members to experienced, vetted advisers in the first place. Many schemes simply direct members to find their own advice in an ever reducing market of specialist transfer advisers. The risk of not just scams, but poor advice and overcharging is therefore considerable.

Directing members to high quality advice can be done in two ways. Either the scheme can appoint an experienced adviser directly, using the scheme’s consultants. Alternatively, they can do so by signposting our free Guiide DB solution on transfer communications to the member. This solution provides members with an education journey on the advice process and signposting to vetted and monitored adviser panels. 

Additional costs of transfer checks

Many schemes already undertake scam checks before making a transfer. Now all will be required to do so. This will inevitably lead to additional costs associated with transfers for schemes.

The legislation is clear that “Transfers can proceed with no further checks to authorised master trusts, authorised collective defined contribution schemes, and public service schemes. Trustees and providers can also maintain a 'clean list' of personal pension schemes they have reason to believe are not being used for scams”

No experienced, well regarded adviser will ever advise a transfer to a receiving vehicle which is not one of the entities above. Therefore, providing access to this advice at outset removes the need to verify that the receiving vehicle is not a scam, where this advice has been followed by the member. 

Guiide DB welcomes its first scheme of around 5,000 deferred members using our service this month. The scheme already uses a scam checking service before transfer payment. However, for members that have used our adviser panel and followed the advice provided, these checks will no longer be necessary. This saves the scheme cost by tackling the issue at outset.

Transfers can occur without advice below £30K. This leads to an acute risk as finding a receiving vehicle without advice is very difficult. This leaves members susceptible to a scam given the little choice available and no advice provided.

To address this, in Guiide DB, for transfers below £30K, the member will be signposted to check if their existing workplace scheme will accept the transfer. If not, an FCA regulated provider that will accept these transfers, without advice, is signposted. 

Again if these routes are followed by the member, the risk of a scam is removed, even where advice is not a legal requirement.