2021 transfer regulations: some problems and solutions

A good idea in theory has morphed into an unnecessarily complex and tedious process. It presents a number of problems – some of which (with some solutions) — are covered below.

What if it is the member’s fault?

The legislation — much of which was drafted in the 1990s — works on the assumption that once a member has 'accepted' the transfer-quote, paying it within the six-month guarantee period is wholly within trustees’ hands. In reality, that is not true.

Members frequently do not provide all the information needed, and some administrators require members to see the internal ‘scams service’ in addition to any MoneyHelper appointment. All this can add delays to the process.

Can trustees tell a member they have lost their right to a transfer due to their own delays? Unfortunately, I do not think they can. The legislation does not allow that once the member has accepted the offer.

But one way to achieve the same result is to decide that 'accepting' the offer is not just saying ‘yes’, but necessitates the member providing all the required information.

That requires application forms to be clear about what is needed up-front, and for the administrator to review the forms quickly to ensure they are compliant.  

Passing the six-month deadline

What if a case passes the six-month deadline because the member is waiting for a MoneyHelper appointment? The legislation provides that breaching the six-month deadline gives the member the right to have the better of:

• the guaranteed transfer; and

• the amount it would be if it was re-calculated.

If there is no reasonable excuse for the delay, the original guaranteed amount has interest added to it. But it seems unfair for the scheme to (in effect) be penalised due to circumstances outside its control.

As mentioned above, however, there is not an option to blame the member in the legislation. However, the legislation says the transfer can only be paid if the conditions are satisfied.

Can you argue that since you do not have confirmation there are no amber/red flags within the six months, you cannot pay the transfer, so the case is timed out?

Attractive thought that may appear, it is not particularly robust an argument, and some lawyers are firmly against this. But it may be worth trying out to see if you can strong-arm your adviser into agreeing that this is an option.

Interaction with a buy-in

Buy-in insurers will typically provide a transfer quote to trustees that is guaranteed for a shorter period than the trustees’ quote to the member.

This raises the risk of the insurer repricing mid-process while the original quote remains guaranteed.

Schemes then have to pay out the original transfer quote even though they may receive significantly less from the insurer.

Solutions here include accepting the quote from the insurer before the member’s quote has progressed (which means taking a punt that the member actually will ultimately transfer out), and/or requiring the administrator to prioritise the quote and ensure it is progressed within the insurer’s guarantee timetable.

Trying to negotiate as long a period as you can in the buy-in contract negotiations is also important.

Non-statutory transfers

Two parts of the legislation that have attracted attention are the red flag for incentives (do they capture minor/nominal incentives), and the amber flag concerning ‘overseas investments’ (does it just mean ‘risky/unusual’ overseas investments).

These are both cases where the plain language of the legislation — in my view at least — is clear: the fact it does not say what the Department for Work and Pensions meant it to say is disappointing, but irrelevant.

Personally, I think trustees can properly pay non-statutory transfers in these sort of situations, which bypasses the legislative restrictions altogether.

This is now explicitly allowed in updated regulator guidance. But trustees loose the statutory discharge — although appropriate discharge wording in the administrators’ forms may be sufficient — so it is far from ideal.

Conclusion

So there are some challenges and some solutions. But many of these challenges are of the DWP’s own making, and the best solution of all would be for the DWP to try again.

Edward Brown is a partner at law firm Hogan Lovells