The government has formally responded to its consultation on early exit charges and transfers but what does it mean for schemes?

Much of the government’s formal response to its consultation on early exit fees and pensions transfers was unsurprising.

Trust-based schemes will be expected to mirror the cap on exit fees that will be decided by the FCA. On top of that there will be more requirements for trustees around reporting on transfers. (For more on this see sister magazine Engaged Investor’s trustee checklist).

Perhaps most interesting was the mooting of a potential ‘whitelist’ of approved pension providers.

The response recognised “the enthusiasm of many respondents” for such a move, whilst also noting that significant work would have to be done in establishing who those trusted providers might be.

wrath-of-the-regulator

wrath-of-the-regulator

It said: “The government has carefully considered the implications of establishing such a whitelist, which would require not only a rigorous quality assurance process but also regular monitoring of trust-based schemes. Any action now would have to operate within the current regulatory framework.”

The government has carefully considered the implications of establishing such a whitelist”

Darren Philp, director of policy and market engagement at B&CE welcomed the move. He said: “We need to speed up transfers, yes, but in the back of everyone’s minds will be pension scams and liberation.” 

He argued that for many schemes, particularly those at the smaller end of the scale, doing the due diligence to ensure that the potential recipient of the funds is trustworthy can be tough going.

However, he cautioned that any whitelist would need to be carefully and regularly monitored.

This is particularly true in the mastertrust market, an area where the government is already trying to improve standards.

We need to speed up transfers, yes, but in the back of everyone’s minds will be pension scams and liberation”

Indeed, in the section of the document focusing on a possible whitepaper the government confirmed that more would need to be done to regulate mastertrust governance before a list could be possible.

The document said: ”The government is however currently considering the underlying issue of whether there is a need for increased supervision of trust-based providers, particularly for those multi-employer occupational pension schemes known as ’master trusts’ which have been set up to support automatic enrolment.

“This work, to review how any strengthened quality assurance process might be achieved, would form an important foundation for any future whitelist, and the government will continue to develop its thinking in this area over the course of the year.”

This puts pressure (probably intentionally) on master trusts to secure the master trust assurance framework”

Tom Barton. a pensions partner at law firm Pinsent Masons, argued that this will put more pressure on mastertrusts to complete the mastertrust assurance framework.

’He explained: “A whitelist of ’trusted’ receiving schemes of a certain quality [is on the cards] – which puts pressure (probably intentionally) on master trusts to secure the master trust assurance framework if they want to play in the transfer space.”

However, Philp cautions that the mastertrust assurance framework is a low barrier to entry and does not guarantee that a scheme will stand the test of time. He said: “Regulators and government need to get a grip on this sector… The Mastertrust Assurance Framework only gets you 50% of the way.”

If the government can overcome the barriers to creating a list, it would certainly help safeguard consumer interest.

Gareth Shaw, head of consumer affairs at Saga Investments, commented:  “This will reduce the risk of consumers being ripped off and transferred into products designed to defraud them of their money.”

Regulators and government need to get a grip on this sector”

The Pensions and Lifetime Savings Association is also backing the creation of a whitelist. Director of external affairs, Graham Vidler said: 

“We will continue to push the government on whitelisting – certifying in advance that all participants in a transfer are legitimate pension schemes and not financial criminals.

”Making transfers safer opens the door to making them much, much faster and also reduces costs. We are particularly glad to see the government’s commitment in their response to consider this further.”