More than 80 per cent of amber flags for pension transfers were for 'unknown' reasons or related to overseas investments, new data shows.
In 2021 new rules for pension transfers were introduced to save people from fraud.
Pension trustees and scheme managers have the power to halt a transfer, if they deem it necessary, by raising a ‘red flag’.
While thousands have potentially been protected from fraudsters, fresh data shows more than four out of five amber flags were raised due to an unknown reason or due to overseas investments.
The figures were obtained under the Freedom of Information act from the Money and Pensions Service by wealth manager Quilter.
Between December 2021 and September 2023, a total of 21,250 amber flags were raised, indicating a potential risk of a scam.
The reason listed for 9,578 of these cases was ‘unknown’, while ‘overseas investments’ was the reason for a further 7,793 of the cases.
Quilter says the intention of the overseas category was to flag unregulated and potentially fraudulent investments, but instead it has caught many legitimate investments and halted potentially low-risk pension transfers.
Since the regulations were introduced MoneyHelper has conducted 21,250 Pension Safeguarding Guidance appointments.
Just 45 per cent of the attendees knew the reason an amber flag had been raised on their pension transfer and 37 per cent of the sessions were conducted after a flag was raised on potentially low-risk transfers relating to overseas investments.
Jon Greer, head of retirement policy at Quilter, said despite the benefits there is still “real cause for concern” about unnecessary points of friction.
Quilter called on the Department for Work and Pensions to resolve issues with the regulations.
Greer said: “Despite the repeated calls for change, there remains a clear divergence between policy intention and the practical application of the law when it comes to the overseas investments wording.
“The DWP must provide absolute clarity via an update to the broad way in which the rules are currently worded, as the drafting makes no distinction between overseas investments that present a scam risk as opposed to those that do not.
“In addition, the lack of clarity provided to customers, and consequently the data that MaPS can capture, has also left a gap in our understanding of the effectiveness of the rules and increases the potential for consumer disengagement and frustration. The onus must be put on pension schemes to provide clear and accurate information to customers on the reason an amber flag has been raised and making it an explicit legislative requirement would be a sure-fire way to solve the issue.”
tara.o'connor@ft.com
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