The Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations prescribe the conditions for pension transfers that the Secretary of State is required to prescribe further to the amendments made by section 125 (exercise of right to cash equivalent) of the Pension Schemes Act 2021 (c. 1) to the Pension Schemes Act 1993 (c. 48) (“the 1993 Act”), in particular the insertion of subsections (6ZA) to (6ZC) into section 95 (ways of taking right to cash equivalent) and of subsections (5A) to (5C) into section 101F (power to give transfer notice). Those sections of the 1993 Act provide for the different ways in which trustees or managers of an occupational or personal pension scheme may, further to application or notice from the member of their scheme (“the transferring scheme”), use the cash equivalent value of, respectively, either the member’s accrued rights to benefits, or pension credit rights, so as to make a transfer of that value into another occupational or personal pension scheme.

Regulation 2 provides, by paragraph (1), that the conditions set out in these Regulations apply to all of the ways in which the member may exercise their right under the 1993 Act (“the statutory right”) to use the cash equivalent so as to make a transfer (defined in paragraph (3)) into another occupational or personal pension scheme.

Regulation 3 provides that the conditions only apply to transfers where the process of the transfer was initiated on or after the date that these Regulations come into force.

Regulation 4 provides, by paragraph (1), that one of the two conditions set out in these Regulations must be satisfied before a transfer can proceed and that, upon a decision that one of the two conditions is satisfied, the statutory right may be exercised. Paragraphs (2) and (3) provide that, where the trustees or managers of the transferring scheme have decided that neither of the conditions is satisfied, but either they realise a mistake has been made, or further evidence or information is provided by the member, they may remake their decision. Where they do remake the decision, the member’s statutory right in respect of that transfer is not lost and may still be exercised.

Regulation 5 provides, by paragraph (1), that the trustees or managers of the transferring scheme must ensure that the member is informed, within one month of the process of the transfer being initiated, of the requirement for one of the two conditions to be satisfied before their statutory right can be exercised. Paragraph (2) provides an exception to this notification requirement where the transfer has already been made. Paragraphs (3) and (4) provide that they must also ensure that the member is notified of their decision as to whether one of the conditions has been satisfied and for the timescales within which this must be done.

Regulation 6 provides, by paragraphs (1) to (4), for the standards of proof that must be applied in decisions made by the trustees or managers of the transferring scheme as to whether the conditions are satisfied (see further below as to when they apply); and, in the case of the Second Condition (defined below), for the constituent decisions as to the presence of the pension scam risk indicators (the “red flags” and “amber flags”, also defined below) relevant to satisfaction of that condition. Paragraph (5) provides for the evidence that may be relied upon in making these decisions (see further below) and paragraph (6) provides for the timing of decisions as to whether the Second Condition is satisfied.

Regulation 7 sets out the “First Condition”. By paragraph (2), it applies to a transfer into a scheme (“a receiving scheme”) that falls within one of the types set out in paragraph (3). Paragraph (4) provides that, in order for the First Condition to be satisfied, the trustees or managers of the transferring scheme must confirm, beyond reasonable doubt (see regulation 6(1)), that the receiving scheme is established or authorised as the relevant type of scheme requires. By paragraph (5), they may not seek evidence from the member to make this confirmation, except insofar as necessary to identify the correct receiving scheme. By paragraph (6), where the member of a transferring scheme is seeking to make a transfer into a section of a divided pension scheme, and that section is a collective money purchase scheme, the First Condition may be satisfied.

Regulation 8 sets out the “Second Condition”. By paragraph (2), it applies to all transfers to which the First Condition does not apply. Paragraph (3) provides that, in order for the Second Condition to be satisfied, the trustees or managers of the transferring scheme must decide that none of the “red flags”, set out in paragraphs (4) and (5), are present in respect of the transfer.

Regulation 9, by paragraphs (1) and (6), provides that pension transfer scams guidance, from the Money and Pensions Service (“the MaPS”), must be taken by the member where the trustees or managers of the transferring scheme decide that any of the “amber flags”, set out in paragraphs (2) to (5), are present in respect of the transfer. Where the member is required, but fails, to provide to the trustees or managers of the transferring scheme the specified evidence from the MaPS of having taken the guidance, this is a red flag (by regulation 8(4)(b)). Paragraph (7) applies the requirement in regulation 10(4) to provision of the specified evidence, so that the member themselves must provide it directly to the trustees or managers of the transferring scheme, unless the exception in regulation 10(5) applies (see below).

Regulation 10 sets out the requirements relating to seeking evidence or information from the member in order for the trustees or managers of the transferring scheme to decide whether the Second Condition is satisfied. By paragraph (1), where the receiving scheme is an occupational pension scheme or a qualifying recognised overseas pension scheme (a “QROPS”, defined in regulation 1), the trustees or managers of the transferring scheme must seek evidence from the member to establish respectively that there is an “employment link” (defined below), between the member, their employer and the occupational pension scheme; or that there is a “residency link” (also defined below), between the member and the QROPS; or in the case of a QROPS that is an occupational pension scheme, they must seek evidence of either the employment link or the residency link.

Paragraph (2) provides that, where the mandatory requirement to seek evidence in paragraph (1) does not apply, the trustees or managers of the transferring scheme may proceed to decide that the Second Condition is satisfied without formally seeking further evidence or information from the member under paragraph (3). They may reach that decision by relying on all relevant evidence or information. This includes that which they may have received from the member otherwise than in response to a formal request, or that which they already hold, such as information obtained in the course of carrying out their duties in relation to the transferring scheme or another pension scheme. In order to reach a decision under paragraph (2), the standard of proof in regulation 6(2) applies so that they must decide on the balance of probabilities that none of the red flags in regulation 8(5), and none of the amber flags in regulation 9(5), are present. (The red flags in regulation 8(4), and the amber flags in regulation 9(2) to (4) cannot apply where they proceed to such a decision as they relate to a request for evidence or information under paragraph (1) or (3), or to failure to supply evidence of taking the MaPS guidance, which is only required to be taken by the member after an amber flag has been found to be present.) Where they do not subsequently reach a decision that a red flag is present, they must decide that the Second Condition is satisfied.

Paragraph (3) provides that, where they do not proceed to a decision under paragraph (2), the trustees or managers of the transferring scheme have the discretion to seek from the member such further evidence or information as they consider relevant in order to reach a decision as to whether the Second Condition is satisfied. Where they exercise that discretion, the standards of proof in regulation 6(3) apply to the constituent decisions as to the presence of any of the red and amber flags. They must decide beyond reasonable doubt whether either of the red flags in regulation 8(4), or the amber flag in regulation 9(2), is present; and they must decide whether they have reason to believe that any of the red flags in regulation 8(5), or any of the amber flags in regulation 9(3) to (5), is present. Where they do not subsequently reach a decision that a red flag is present, they must decide that the Second Condition is satisfied.

Paragraph (4) provides that the member themselves must provide any evidence or information requested of them directly to the trustees or managers of the transferring scheme, with the exception of where they have one of the representatives set out in paragraph (5) acting for them, who may provide it on their behalf.

Regulation 11 sets out the employment link and specifies the evidence required to demonstrate it.

Regulation 12 sets out the residency link; also one item of specified evidence, and the form and accompanying requirements of two other pieces of evidence, to demonstrate it.

An analysis of the impact of this legislation has been undertaken. A copy is available in the libraries of both Houses of Parliament and is published with the Explanatory Memorandum alongside this instrument at www.legislation.gov.uk. Copies may also be obtained from the Better Regulation Unit of the Department for Work and Pensions, Caxton House, Tothill Street, London SW1H 9NA.