Near record high of 70% of transfer requests show scam warning flags

XPS Pensions Group can monitor transfer requests using their Transfer Watch. This allows them to keep track of transfer activity, transfer values, and scam warning flags that appear when a transfer request is made. Recent findings have shown that the number of transfer requests that have triggered a scam warning flag has increased month on month since December 2021.

In December it was found that 41% of pension transfer requests indicated a potential scam, whereas this has since increased to 70% of transfer requests triggering warning flags. This is close to the all-time high in December 2020 where figures were at 76% of requests triggering a warning flag. A possible reason for this is that there have been recent updates to the transfer regulations which has led to more warning flags being observed, i.e., tighter regulations lead to more warnings. XPS Pension Scams categorises these warning flags into yellow, amber and red, with red being those most likely to be a scam, amber flags indicating signs of sharp practice and yellow flags which are warning signs of poor member outcomes. There has been a change in the type of warning flags being more commonly identified, with “issues with fees” decreasing from 52% in December 2021 to 34% in March 2022. On the other hand, warnings identified as “receiving scheme issues” had increased significantly from 15% to 46% since December 2021.

While the number of transfers being stopped from proceeding has remained low, the increase in warning flags is causing members to seek guidance from MoneyHelper which is leading to pressure on the service to provide guidance to all members in a timely manner.

In addition to this, a continuing downward trend of transfer activity also continued in March. The XPS Transfer Activity Index fell to 0.38% (38 in 10,000 members) down from 0.4% last month (40 in 10,000). This is the lowest rate seen since XPS started to monitor activity back in 2018. This fall in transfer activity may be caused by the current situation between Ukraine and Russia which is leading to some degree of economic uncertainty making people more cautious about moving money around and therefore are refraining from making any transfers.

On the other hand, with living costs continuing to rise, it is possible that members may seek to access their benefits early to help with the rising costs which may make them more vulnerable to poor outcomes or even possible scams. Therefore, this current downward trend of pension transfers could slow down, and we might see even an increase in transfer activity in the coming months.

The XPS Pensions Group are also able to monitor the transfer values during the month. The Transfer Value Index records a monthly average value of transfers, and it shows that there has been a decrease of 2% in the value since last month (down to £245,000) which is in turn 9% lower than the peak average transfer value of November 2021. Although inflation expectations increased over March, the continued rise in gilt yields has resulted in an overall fall in transfer values which is likely to continue to decline over the coming months whilst inflation levels remain high.

Head of member options and XPS Pension groups, Mark Barlow, believes that the historically low levels of transfer activity is a sign that members are struggling to find suitable financial advice. He added, “It’s imperative that schemes do all they can to help members access quality advice before they make any decisions about what to do with their pension pots.”

A key piece of information to note from all this is that it appears that members are requiring better financial advice so that they do not fall prey to any pension scams in the future. The tighter regulations are clearly a factor in the increase in pension scam warning flags, but they are also making it safer for members to transfer their pensions and therefore, despite warning flags being at a near all-time high, it would seem that the correct steps are being taken to stop members from being scammed.

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