On the go: Defined benefit pension scam warnings increased in May to their highest level in five months, according to research from XPS Pensions.
The pension consultancy’s red flag index showed scam warnings increased to 61 per cent in May 2021, up from 59 per cent in April and 52 per cent in March.
The index tracks the percentage of monthly transfers reviewed by XPS’s scam protection service that are identified as having ‘red flag’ warnings that indicate a member is at risk of being scammed. The red flags are based on the Pension Scams Industry Group’s code of good practice.
Helen Cavanagh, consultant at XPS Pensions Group said: “It is disappointing to see another increase in the red flag index, which points to a need for ongoing robust management from trustees to ensure they have protection for all transfers.”
As well as an increase in scam warnings, XPS also reported a small increase in the transfer value index, which shows the estimated cash transfer value of a 64 year-old member with a pension of £10,000 a year with typical inflation increases.
Transfer activity also rebounded slightly over the month, with XPS’s research showing an annual rate of 63 members transferring out of every 100,000.
The findings follow the recent closure of the Department for Work and Pensions’ consultation on legislation to restrict the statutory right to a transfer value and add some safeguards.
As reported by Pensions Expert, the DWP published a consultation in May giving scheme trustees and managers new powers that, the government said, will provide additional protection for members against scams.
In response to a previous consultation, the government had already imposed restrictions on the statutory right to a transfer, limiting it except in those cases where, for instance, the recipient scheme was a master trust, a personal pension scheme authorised by the Financial Conduct Authority, or where a genuine employment link between the member and the recipient occupational scheme could be evidenced.
The new proposals go further, requiring scheme managers and trustees to confirm that a transfer is to one of the number of schemes declared to have a low scam risk.
If it is considered a low risk, then no further action or confirmation is needed. If it is not, members can only exercise their right to a transfer if they can provide “certain prescribed evidence”.
However, XPS’s data revealed that one in three high-risk pension transfers since July 2018 would still have satisfied the first condition of the DWP’s proposed legislation designed to reduce scams.
“The new legislation proposed by the DWP is a helpful first step and will empower trustees to stop transfers if they suspect there’s a scam,” Cavanagh said.
“However, even with the new impending legislation, trustees need to ensure they have robust scam protection processes for all transfers.”
