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PO issues 1st determination on Transfer Regs conditions

In Mr W (CAS-93568-H0D0) the Ombudsman has given his 1st determination on the Occupational and Personal Pension Schemes (Conditions for Transfers) Regs 2021. The Regs protect members against scams when transferring benefits to other schemes, requiring: (1) the trustee to identify if there are “red” or “amber” flags; (2) the member to seek guidance from the advisory service MoneyHelper (if there is an amber flag).

By Reg.9(5)(d) an amber flag is present where “… the trustees … of the transfer scheme decide that … there are any overseas investments included in the receiving scheme”. Taken literally, this would require an amber flag to be identified where the investments of the receiving scheme included overseas investments. The industry has raised concerns that this requirement would apply to a large number of cases where schemes invested in low-risk overseas assets; the DWP has since confirmed it was not intended that this provision encompass circumstances at low risk of a scam; and tPR has issued guidance advising trustees that they can consider granting a discretionary transfer to schemes investing in overseas funds where there is a low risk of a scam.

The determination involved a request by a member to the trustee to transfer his benefits to a UK-registered personal pension, to be invested largely in overseas equities. The trustee decided an amber flag was present and notified the member that he needed to make an appointment with MoneyHelper. The member disagreed, but the trustee, having received legal advice that the Regs applied to all schemes with overseas investments, confirmed its decision. The member complained of unnecessary delay in carrying out his transfer request, causing a reduction in value.

The Ombudsman declined to uphold the member’s complaint, holding the trustee was entitled to decide that there were overseas investments in the receiving scheme, and that its literal construction of the Regs was not unreasonable. He noted that the wording of the Regs and their intended practical application may not be aligned.

The determination supports a literal reading of the Regs to apply to all schemes with overseas investments, irrespective of the apparent appropriateness of those investments. Trustees will accordingly need to be careful about permitting a transfer to proceed without raising an amber flag, even if the receiving scheme shows no sign of being a scam. This determination will only strengthen the calls for the Regs to be amended to accord with the intention behind them.

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