Article Summary

New regulations with a red and amber warning system to prevent pension transfer scams went into effect on November 2021. The rules, which are the result of a consultation carried out by the Department for Work and Pensions (DWP), require pension providers to raise red or amber “flags” when a transfer attempt is made to certain types of scheme. A ‘red flag’ means that the statutory right to transfer has been removed, whereas an ‘amber flag’ can be used to pause a transfer until the scheme member can demonstrate that they have taken scam-specific guidance from the Money and Pensions Service (MaPS).

The DB pension transfer became even more complicated in November 2021 as a result of the government’s updated pension transfer measurement. To prevent pension fraud, the Pension Schemes Act 2021 requires that certain conditions are met before a member’s benefits can be transferred to another scheme.

These regulations and the new flagging rules are discussed briefly in one of our YouTube videos below. Watch and learn from the Pension Transfer Specialist, and subscribe to our channel for more videos about the UK Pension Trnasfer industry.

Getting Scammed On Your DB Pension?

New Regulations: The Red Flag and Amber Flag Rules

The empowered trustee legislation’s primary goal is to protect pension members from transfer fraud. This new legislation adds to the trustee’s or scheme manager’s responsibilities:

  • This new regulation gives trustees and scheme managers the authority to decide whether or not to allow a transfer by outlining the requirements that must be met.
  • The trustees must confirm that the member can demonstrate their connection to the pension scheme to which they wish to transfer. If members want to transfer to a QROPS but cannot show an employment connection, they must demonstrate residency in the same financial jurisdiction they want to transfer to.
  • Trustees will be able to decline a transfer request if they notice “red flags.” In the case of other potentially fraudulent transfers, they will also prevent people’s hard-earned funds from being transferred to suspicious schemes without professional guidance. These restrictions may apply to both the transfer’s destination and situations in which the pension holder is unsure how their money will be invested or how much they will be paid to manage their savings.
  • Without additional checks or activities to be performed by the trustee within its existing processes, the trustee may conclude that red and amber flags do not exist.
  • This new metric empowers trustees and managers to take action, building on the government’s previous ban on pension cold calling and stricter restrictions to prevent scammers from opening fraudulent pension plans.

When the following conditions are met, a red flag appears:

  • A member does not respond to a request for information about the transfer’s circumstances.
  • The trustees or management of the transferring scheme have asked the member to follow certain guidelines, but the member has not provided the required proof.
  • When a person or firm without the necessary regulatory permission provides financial advice to the member regarding the transfer.
  • The member requested the transfer in response to unsolicited communication about making a transfer from an unknown party.
  • The member has received a financial incentive in exchange for the transfer. 
  • The client was pressured to complete the transfer as soon as possible.
  • Employees will still be required to provide proof of employment or a residence relationship when transferring to a UK occupational pension scheme, QROPS, or SIPP, but schemes will also need to be satisfied that no amber or red flags are present. An amber flag will be raised if the trustees are not convinced that the evidence presented proves an employment or residence relationship.
  • The red flag indicates anything significant, such as the fact that you stated that you were cold-called and told that you could access your pension at the age of 50, which would obviously be illegal because the legal retirement age is 55.

An amber flag appears when:

  • There are investments that are high-risk or unregulated. 
  • The fee structure of the receiving scheme is ambiguous or excessive. 
  • The investment structures of the receiving scheme are ambiguous, complicated, or unusual. 
  • The receiving scheme has international investments, or an international adviser has advised the member on such assets, or the transferring scheme’s trustees or managers are aware of a large number of requests to transfer from their scheme.

There Is No Fixed Rule for the Amber Flag in the UK

In our professional experience, there are some facts that confuse both pension transfer specialists and scheme members. For example, there is a section of the pension scam legislation that refers to international investments; as a result, this can raise an Amber flag,  requiring the client to follow a MAPS (money advice pension service) phone call to ensure they understand what the pension members are doing.

We can use David as an example of how perplexing the term “international investment” can be. David has a UK pension scheme and is currently transferring his pension into a SIPP. Just before the process, the trustee raised an amber flag and asked him to call MaPS to learn more about the international investment within the SIPP to which he wanted to transfer his pension.

He has an S&P 500 portfolio within his SIPP, which is one of the largest funds in the world from one of the most credible companies. Because it is an international investment, he should have to contact MaPS to declare that he is already familiar with the S&P 500.

New transfer rules enacted in November 2021 require the trustees of a transferring pension to find an amber flag, which halts the transfer if they determine that the receiving scheme contains overseas investments. Before the transfer can be authorised, the member involved in the flagged transfer must demonstrate that they have received scam guidance from the Money and Pensions Service (MaPS). Trustees must also stop a transfer if they notice a “red flag.”

The question is whether he should declare that he already knew about the investment because it was one of the largest. We don’t think so; it will definitely slow down the process, and the ceding scheme’s claim that the S&P 500 is a risky investment is quite ridiculous.

In our opinion, the ceding scheme should create a specific list that is labeled as ‘risky international investment.’ If all offshore investments are labeled as an amber flag, we will see a lot of calls for unnecessary explanations.

Delays in Pension Transfers

This new legislation has a number of consequences, including longer-than-ever pension transfer times and increased fraud protection. The majority of this time has been spent by the UK Ceding Scheme because they have to conduct extensive due diligence to ensure that you are not being taken advantage of, investing your money in an unsafe or unregulated fund, or becoming a victim of cold calling.

From our perspective, anything that protects our clients or keeps people from having their UK pension fund snatched is generally beneficial. However, the inverse equation regarding the completion of the pension transfer process is also present; we recognise that delays in the transfer process may have a significant impact.

How Your IFA Can Help You

It goes without saying that an IFA is a crucial part of your UK pension transfer. You have to get financial advice from an FCA-regulated IFA if your DB pension value is above £30,000. Proper financial advice from a regulated IFA is not there to take your money, they are there to help you to provide financial options that suits you best not only in a few years ahead, but until the time you passed away.

Apart from the financial advice, your IFA will act on your behalf and go through all the hassle of transferring your UK pension by chasing the ceding schemes to complete all the necessary paperworks, securing your CETV, and other regulations as well as taxation that you are not even familiar with. Which is why, putting your trust in IFA is an important thing, as it can help you to get your UK pension transfer business faster.

If you are a US resident and looking to transfer your UK pension, hit the button on the right side to start a free initial consultation with one of our IFAs to learn your situation and what to do best with your UK pension assets.

Our Founder & CEO -
Dominic James Murray

I have been in the UK Pension Transfer industry for over 11 years, and have witnessed seismic changes in the UK Pension rules over the course of that decade. Most to the benefit of the UK Chancellor or to Chequer!

My 5 years as CEO of Cameron James, have certainly been the most rewarding. My goal, has been a simple one. Provide clients with transparent financial advice on a low-cost basis, for them to make informed decisions to protect their families best interests.

Our Clients Love Working With Us!

We have worked hard for our reputation and we will be maintaining it.

5.0 Star Rating