New law: Pension scheme trustees scramble to comply with new rules on members’ rights to take a cash equivalent transfer value

A ‘First Condition’ under the new laws requires trustees to satisfy themselves beyond reasonable doubt that the transfer is to:

• a public service pension scheme meeting specified criteria; or
• a Master Trust scheme authorised and listed by The Pensions Regulator (TPR); or
• a collective money purchase scheme authorised and listed by TPR.

A ‘Second Condition’ then requires them to assess whether the circumstances indicate a risk the member is being scammed. In a specified ‘red flag’ (high risk) situation, the transfer must not go ahead. In an ‘amber flag’ situation, the transfer must not go ahead unless the member shows they have received guidance from the Money and Pensions Service at an MaPS guidance session (which the member must have received, even if they have also taken their own, separate financial advice), and indicates they wish to proceed. The trustees must record the member’s decision in writing.

The information trustees and managers are required and/or permitted to ask the member to provide differs depending on the type of scheme and circumstances – and may have data protection implications. Trustees are also expected to take account of particular ‘member vulnerabilities’.

Trustees and managers should note that the final new laws differ in some significant respects from the drafts issued for consultation in May 2021. For example, in the May draft the First Condition was also satisfied if the transfer was to a scheme operated by an insurer registered and authorised by the Financial Conduct Authority (FCA) and authorised by the Prudential Regulatory Authority, but this is not the case in the final rules.

The Pensions Regulator has issued new guidance for trustees, pension managers and administrators on checking, proceeding with and refusing transfer requests from scheme members. ‘Dealing with transfer requests’ is available on the TPR website.

Operative date

• Now

Recommendation

• View the new TPR guidance on the TPR website.
• Trustees and managers of occupational and personal pension schemes should act fast to change their processes, policies, procedures, and documentation, including ensuring adequate communication with members, and train staff, to comply with the new laws when members ask to transfer a cash value out of their scheme.