‘Unnecessary bureaucratic hoops’: Pension savers fall victim to outdated scam safeguards
The government’s pension scam safeguards have been called into question after only a minority of transfers flagged as potential scams were found to be genuinely high-risk, slowing savers’ transfer process.
Of the 51,417 amber flags on pensions since November 2021, just 18 per cent were found to relate to high-risk investments or other flagged categories, according to an FOI request to the Money and Pensions Service (MaPs) from Pension Bee.
Amber flags are warning signs raised by pension providers that a proposed transfer may carry a risk of being a scam, causing the transaction to be ground to a halt until the saver completed a scam-awareness session with Money Helper.
In contrast, 46 per cent of transfers which were flagged, were found to be ‘unknown’, meaning they lacked a reason for being halted.
The number of cases being stopped for lacking a label has been credited to poor data tracking from both providers and MaPs, as well as trustees being worried about letting a scam slip through the cracks, causing many to stop the transfer without a valid reason.
Meanwhile, 35 per cent of cases were flagged as they were ‘overseas investments’ where savers move their retirement savings from the UK to an offshore scheme or UK scheme with international fund options.
Transfer woes
Under regulation trustees and providers are legally obligated to raise an amber flag if a receiving scheme includes any overseas investments, regardless of reputation.
But despite a joint statement from the Department for Work and Pensions and the Pensions Regulator in 2023 expressing concerns over overseas investments triggering amber flags causing savers to be ‘referred to MaPs’ unnecessarily, no recommendations have been implemented.
Some pension scheme trustees are also opting to follow the letter of the legislation rather than apply risk-based judgements, which is shoving scores of consumers into a route which should be for identifying and protecting against real scams.
The difference in approaches from trustees has led to an inconsistent use of flags, confusing consumers and slowing down the process, putting off savers from transferring their pensions.
The data also found that nearly 53,000 mandatory sessions have been carried out by MaPs in the past four years, but no data on how many of those resulted in identifying genuine scams, led to a referral to Report Fraud or resulted in a saver being advised not to proceed has been recorded.
Lisa Picardo, chief business officer UK at Pension Bee, said: “These findings are difficult to defend.
“The cost falls on the ordinary savers trying to engage with their retirement savings – people who are trying to make better decisions about their retirement and are being forced through unnecessary bureaucratic hoops.
“What should be a simple and straightforward switch becomes a drawn-out ordeal, and that erodes trust in financial services and puts people off engaging with their retirement altogether.”
Wider problems
Picardo also argued that “until rules are tightened” providers will continue to treat routine transfers as potential scams, urging the government to enact the 2023 recommendations.
The findings also come amid more problems within the transfer service being uncovered, with some providers taking up large amounts of time to carry out a transfer.
The fastest transfers took just five days, while the slowest took between a staggering 47 to 90 days.
Some legacy providers are also using ‘sludge practices’, which are deliberate and excessive frictions, such as requiring signatures on paper, to delay clients transferring money.
The practices shuts out pension savers who do not have access to digital platforms, such as self-employed people and those without workplace schemes, from faster transfer times.