Restricting statutory transfers rights
The government has confirmed that it will legislate to amend the existing statutory transfers regime so that pension scheme members only have a statutory right to transfer their pension from one scheme to another where one of the following conditions apply:
- The receiving scheme is a personal pension scheme operated by an FCA-authorised firm or entity.
- A genuine employment link to the receiving scheme can 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 scheme is an authorised master trust.
The government believes that restricting statutory transfers in this way will help to prevent pension scams, which often involve a transfer to an occupational pension scheme where there is a very tenuous employment link between the individual member and the sponsoring employer, and so address the specific issues raised in the Hughes v Royal London decision. The majority of respondents to its previous consultation paper on pension scam issues (discussed in our previous update) agreed.
Timescales for implementation
Implementation of these amendments to the statutory transfers regime will be delayed until the master trust authorisation regime has been introduced. This means that the new measures may not be in place until 2019. In the meantime, the government confirms that it will be working on two related points: how best to extent the criteria under which there is a statutory right to include legitimate transfers to qualifying recognised overseas pension schemes (QROPS) and guidance on how members will be expected to evidence the employment link.
Impact for non-statutory transfers
Transfers that do not meet these requirements would still be permitted at the trustees’ discretion in accordance with the scheme rules, i.e. as non-statutory transfers. This potentially puts a greater onus on trustees to identify and facilitate legitimate transfers which do not meet the revised statutory criteria.
What is a pension scam?
The government’s paper also confirms a revised definition of a pension scam, which it has agreed with the multi-agency task force established to tackle pension liberation fraud, Project Bloom. They have agreed that pension scams involve the marketing of products and arrangements and successful or unsuccessful attempts by a party (known as the scammer) to:
- release funds from an HMRC-registered pension scheme, often resulting in a tax charge that is not anticipated by the member;
- persuade individuals over the normal minimum pension age (currently 55) to flexibly access their pension savings in order to invest in inappropriate investments; or
- persuade individuals to transfer their pension savings in order to invest in inappropriate investments, where the scammer has misled the individual about the nature of, or risks attached to, the purported investment(s), or their appropriateness for that individual investor.
What else has the government confirmed it will do?
The government confirms that it will proceed with its proposed ban on cold calling in relation to pensions with details to be worked on during the course of this year and legislation to be brought forward “when Parliamentary time allows”. It has also published draft legislation providing that only active (i.e. non-dormant) companies will be able to register new pension schemes with HMRC, to address perceived issues with the use of small self-administered schemes (SSASs) by pension scammers.