DWP set to make huge change to rules after THOUSANDS were blocked from moving pensions

SAVERS are set to get new rules to stop firms taking too long to move their pensions, The Sun has learned.

Multiple industry sources involved in discussions with the Department for Work and Pensions (DWP) have told The Sun it is working on re-drafting its own rules to help stop pension transfers being blocked without good reason.

It comes as we can reveal thousands of potentially low-risk pension transfers were put on hold last year as a result of legislation introduced in 2021 to help prevent scams.

This has left savers facing long delays when trying to move their retirement funds.

A pension transfer is where you move one of your pensions to another provider, or merge pension pots together.

The new rules introduced in 2021 required pension schemes to raise an “amber flag” if they had concerns about a pension transfer, such as that a saver may be moving money into scam investments or paying excessive fees.

Responding to a freedom of information (FOI) request sent by The Sun, the government-backed Money and Pensions Service revealed 16,482 pension transfers were referred to it after being blocked by “amber flags” in the year to January 31 2024.

But industry experts say the rules have been interpreted too literally, resulting in thousands of legitimate transfers being blocked.

Indeed, the top reason for transfers being halted by amber flags last year was “unknown”, our FOI showed. This means no specific reason was given for the delay.

The next most common reason for halting transfers was because of the presence of “overseas investments” in the new pension scheme, which the vast majority of pension funds are likely to contain, according to experts.

And the number of transfers being blocked has hugely increased over the last few years – particularly for unknown reasons.

In 2022, an FOI by financial firm Quilter found the most common reason transfers were blocked by amber flags at the time was due to overseas investments, but this affected just 134 transfers over a three-month period.

The DWP has been engaging with the pensions industry around how its rules are working since they were introduced.

But it is understood that serious conversations about redrafting them began last year, possibly because the situation has worsened over time.

Insiders say the DWP is now preparing to re-word its rules – or may have already started – and is seeking parliamentary time to push the necessary changes through, although an exact time frame is not yet confirmed.

Rebecca O’Connor, director of public affairs at PensionBee, said: “Since the DWP brought in its anti-scam legislation, there have been more hold ups of legitimate transfers.

“It’s important that people are protected from scams, but it’s also important we have a functioning marketplace where savers can trust their switching experience won’t be frustrated by avoidable delays.”

A pension transfer usually takes 2-4 weeks, according to Hargreaves Lansdown, but an amber flag can add an additional six weeks due to having to book an appointment with the Money and Pensions Service, the DWP said last year.

A spokesperson for the DWP said: “Our landmark transfer rules are helping protect people from fraudsters and are estimated to have prevented around 2,000 fraudulent transfers.

“We have always said these must strike the right balance between providing the necessary protection for pension savers against scams, while ensuring they still have freedom and choice about where their savings are invested.

“Work to consider if they could be improved, without undermining the policy intent, is ongoing.”

What are the pension scheme regulations?

In November 2021, the DWP introduced legislation to require the trustees of a transferring pension to raise an “amber flag” if they had concerns about a pension transfer.

Pension scheme trustees are responsible for looking after savers’ funds by ensuring schemes are run properly and that their cash is safe.

Raising an amber flag effectively pauses a pension transfer from going ahead until any issues are investigated.

The rules were brought in to help prevent scams, as pension funds are commonly targeted by fraudsters and those affected are often left with nothing.

But the ambiguous way in which the rules are worded has resulted in thousands of potentially low-risk transfers being significantly delayed, frustrating savers trying to move their pensions legitimately.

It is understood that one part of the wording the DWP is considering changing is: “Amber flag where there are any overseas investments included in the receiving scheme”.

One insider said this wording was “clearly not intended to be taken literally or else no transfers would ever occur”, yet this is exactly what is happening.

Tom Selby, director of public affairs at pension firm AJ Bell, said his company has seen evidence of pension schemes taking an “over-zealous approach” to blocking “perfectly legitimate transfers” for this reason over the last few years.

“The Government has understandably been turning every stone to protect hard-working savers, but it was clearly not the intention of the rules to stop any transfer to a scheme that offers overseas investments,” he said.

Phil Warner, head of regulatory development at Hargreaves Lansdown, added that some schemes have been required to refer transfers even if there are no concerns just “because of how they’re set up”.

“We welcome the Government’s engagement with the industry to address these concerns and better help schemes protect savers while not unnecessarily delaying genuine pension transfers,” he said.

Can I complain if my transfer takes too long?

If you feel your pension provider or financial adviser are taking too long to transfer your pension, your first port of call should be to complain directly.

Say you’re making a formal complaint and provide any evidence, such as when you first asked to transfer and any correspondence since.

If you don’t agree with the outcome of your complaint, you can complain to the Financial Ombudsman Service (FOS) for free.

The FOS helps manage disputes between firms and customers, and if it agrees with your complaint it will make the firm put things right.

The FOS states that unnecessarily long delays that cost you are a legitimate reason to make a complaint.

You must complain within six months of the business sending you its final response.

If your complaint is with the Money and Pensions Service, you can complain directly by emailing complaints@maps.org.uk.