Industry experts have suggested that legislative changes may be needed to address concerns around pension transfer regulations, despite updated guidance and clarification from The Pensions Regulator (TPR) and the Department for Work and Pensions (DWP).

Concerns were recently raised after PensionBee accused several pension providers of abusing the new pension legislation, which was introduced in November 2021 and gave trustees the power to flag and block transfers that showed signs of a potential scam.

However, many of the providers in question suggested that PensionBee’s marketing initiatives fall within the meaning of an ‘incentive’ under the new regulations, which state that any transfer that has been incentivised cannot proceed as a statutory transfer.

TPR and the DWP have since issued a joint statement to address these concerns, also updating the regulator's guidance to provide further clarity on the issue, which confirmed that whilst the presence of an incentive could mean there is no statutory right of transfer, trustees could allow a discretionary transfer if scheme rules allow and if due diligence shows the transfer is at low risk of a scam.

More broadly, the joint statement emphasised that whilst the regulations are not intended to impose additional burdens on schemes or administrators, or to impact on standard business practices, urging trustees to adopt a "risk-based approach".

It stated: "The government remains committed to individuals being able to make decisions about their pension pots but wants to enable trustees to play their part in preventing members from being scammed.

“Where a transfer causes no concern, which should be the vast majority of cases, they should proceed with no further action required.

"Where trustees believe the regulations mean there is no statutory right to transfer but they have concluded following due diligence that the transfer is at low risk of a scam, trustees can grant a ‘discretionary transfer’ where scheme rules allow."

The joint statement also confirmed that the DWP will consider this issue further as it takes forward its review of the regulations, with work currently underway to meet the commitment to publish a report on the regulations within 18 months of them going live.

However, LCP senior consultant, Daniel Jacobson, warned that there still remains a "fundamental mismatch" between TPR's guidance and the wording of the legislation, arguing that the DWP should bring this review forward and make legislative changes to address the confusion.

“Until this is tested by a case going before the ombudsman or the courts to set precedence, many trustees will rightly err on the side of following the wording of the legislation, even if this is not the stated intention of it," he stated.

“Although the DWP has committed to a review of the regulations within 18 months, that still leaves the industry with around a year to go.

“We would urge the DWP to bring this review forward, to fully engage with the industry, to conclude the review and bring in the changes swiftly and to make meaningful changes that will align the intent and the wording of the legislation and that gives trustees and the industry clear, workable guidelines to follow."

Pensionbee CEO, Romi Savova, also argued that while "pension providers have been put on notice: routine pension transfers can and should go ahead promptly", some legislative changes may still be needed if the current delays and practices continue.

She continued: “It now remains to be seen whether - despite the explicit and unambiguous announcement that the legislation should have no impact on the process for transfers that, prior to the introduction of the regulations, would have caused no concern - the handful of pension providers intent on delaying transfers will continue to frustrate consumers from moving their own money.

“Should these practices continue, we would call on regulators to end the pension transfer lottery once and for all: by legislating for a pension switch guarantee.”

B&CE, provider of The People’s Pension, head of pension policy, Tim Gosling, confirmed that the provider will be following the updated guidance, stating: “This guidance acknowledges the position that the regulations may capture commonly used incentives and where this is the case, no statutory right to transfer exists.

"It suggests that schemes should make a non-statutory transfer at the discretion of the trustee, once additional due diligence has taken place, which is what we have implemented.”

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