In a previous post, my colleague Kate Simmons considered the changes to the statutory transfer regime which came into force on 30 November 2021. In particular, Kate looked at the implications of the requirement for members to take guidance from the Money and Pensions Service where the receiving scheme has “overseas investments”.

In this post we will look at some of the other queries which have been raised as a result of the new requirements – further details on which are available here.

Unregulated advisors

Under the new transfer provisions, it is a “red flag” if a member’s advisor is not authorised to advise on pension transfers in the UK. If there is a “red flag”, trustees are not permitted to proceed with the transfer request.

Where a member is transferring their benefits to an overseas pension scheme, it is not uncommon for members to be advised by two separate advisors: a UK regulated financial advisor in respect of the requirement to obtain advice on transfers of defined benefit benefits with a value in excess of £30,000; and an overseas firm advising on the transfer into the receiving scheme. The overseas firm in that case will often not be authorised to advise on transfers in the UK.

We understand from the FCA that, where a UK advisor is providing advice in relation to an overseas transfer, the FCA now expects advisors to not only focus on the transfer out of the UK, but to also cover the scheme to which the transfer is being made. This may involve the advisor obtaining further information on the particular scheme or liaising with a member’s local advisor.

If trustees come across a situation where a UK authorised advisor is providing advice alongside an overseas non-regulated advisor, trustees may wish to consider asking members to confirm that the UK advisor has provided advice not only in respect of the UK transfer, but has also considered the receiving arrangement in compliance with FCA requirements. If this is the case then the trustees can feel more comfortable making the transfer, notwithstanding the involvement of a non-authorised advisor in the process. 

Non-statutory transfers

Members are only entitled to a statutory transfer until one year before their normal pension age. However, many members consider transferring out at the time of their retirement, for example to draw down cash in their retirement. These transfers are made under the relevant provisions in the scheme’s rules and so the question has come up as to whether the new requirements for statutory transfer values will apply equally to these transfers.

The Pensions Regulator in its guidance is clear that trustees should carry out the checks required for statutory transfers when responding to a non-statutory transfer request. Indeed, given that the checks are aimed at preventing fraud which would cause members to suffer loss, doing so is consistent with trustees’ fiduciary obligations in respect of the members.

If, having carried out the checks, the trustees have uncovered a “red flag”, they will then need to consider whether they can proceed with the transfer. Strictly speaking the statutory restriction will not apply in these cases and so the trustees will not be able to rely on this in refusing a transfer. That said, given that non-statutory transfers are usually only provided under the rules of the scheme at the discretion of the trustees, in our view it would be reasonable for trustees to exercise their discretion in these circumstances to refuse to process the transfer.

Where a member does not have a unilateral right to transfer, the Ombudsman is unlikely to be sympathetic to the member if they raise a complaint regarding the trustees’ decision to refuse the transfer. This decision will have been taken on grounds which are accepted as appropriate for statutory transfers and made with a view to protecting the member’s interests.

Trustees will, however, have to give more careful consideration where members have a unilateral right to transfer under the rules.

Clearly both of these issues, along with the points raised by Kate in her previous post, will require careful consideration and trustees should take steps to ensure that appropriate processes are in place with their administrator to deal with these kinds of situations.

Is there any possibility of change to the regime?

Yes – the government has said it will review the regulations after 18 months. It would therefore be advisable to retain sufficient flexibility in the processes put in place to ensure they can easily be adapted if further changes are made.