Whilst the final form of the new anti-scams legislation for pension transfers is awaited, and is not expected until the Autumn, administrators are currently (or at least, they should be!) working their way through the draft proposals and considering what changes will be needed to their processes and procedures. Although we don’t know exactly when this legislation will become operative, there is a clear risk that it will apply with next to no notice, so doing nothing for now is not an option.
We’ve previously said (New pension anti-scam laws: what does this mean for trustees?) that trustees should be talking to their administrators to ensure that they are ready to act when the regulations are announced in their final form. However, something else that trustees should be ready for is that, in some individual cases, you will be asked by their administrators to take the final decision as to whether or not one of the conditions is met and therefore a statutory right to transfer exists, particularly where the perceived presence of a red flag is not clear cut. For cases where it’s decided there is no statutory right, the trustees will then need to decide whether to allow the transfer to go ahead under their own scheme rule provisions or to block it.
Make no mistake, things are going to be tough for trustees. On the one hand their duty is to act in the best interests of their members, so they may feel that stopping a transfer is their only option. On the other, this runs the risk of a disgruntled member who may be told that they’re not allowed to do what they want – and indeed are told by the scammer that they have a right to. Even worse is the potential for a member who falls victim to a scam, is allowed to transfer, and then loses their pension to fraudsters, leaving the member to come back to the trustees looking for recompense. There is recent precedent from the Pensions Ombudsman where trustees have been directed to reinstate scammed members back into their scheme, where the Ombudsman has felt that insufficient due diligence was carried out (The Police Pension Scheme (PO-12763) | The Pensions Ombudsman (pensions-ombudsman.org.uk). Trustees may also be directed to compensate the member for the distress and inconvenience they have suffered. There is therefore a very real risk - both financial and reputational - to trustees.
Whilst it may seem that trustees will be stuck between a rock and a hard place, there are a number of things you can do that will not only help in managing the additional demands the new anti-scam laws may introduce, but also help defend any challenge to your decisions further down the line:
- First of all, it’s important that there are clear lines of communication with administrators and mutual agreement on what types of case will be referred to trustees and at which point in the transfer process.
- Trustee governance processes and policies should be reviewed and, where necessary, updated with legal sign off sought, if thought appropriate
- Communications to members should also be reviewed and updated in preparation for the new regulations to manage member expectations as to what may be required by trustees to aid their decision-making process.
- Finally, any decisions that are made by trustees should be clearly documented, together with the rationale behind them ensuring that the decisions have the necessary supporting evidence behind them. This way, should a challenge against a decision be raised months, or even years down the line, the information and documentation to justify these will be robust and readily available.
As can be seen from the above, the legislation will mean a number of important changes for trustees in terms of how they operate and you should be taking steps now to prepare for this.