Amber flags are being raised on potentially low-risk transfers relating to overseas investments, causing at least 134 pension transfers to be put on hold between November 2021 and March 2022, according to Quilter. 

The wealth manager gathered data from the Money and Pensions Service (MaPS), revealing overseas investments caused 40% of the recorded amber flags to be raised, which resulted in at least 134 pension transfers put on hold between the introduction of new pension rules in November 2021 until the end of March 2022.

The second most common reason was high risk or unregulated investments, which raised 81 amber flags, followed by unclear/high fees (55 flags raised), complex investment structure (45 flags), high volume to same scheme (15 flags), evidence provided not genuine (13) and high volume of transfers with the same financial adviser (5).

The figures likely show just a small representation of a much wider issue, according to Quilter, as MaPS only keeps a record where the member is given the details of the amber flag by the transferring scheme.

New pension transfer rules were rules introduced on 30 November 2021 to cut down on scam and fraudulent activity. The new rules empower trustees to block or pause transfers where there is potential scam activity.

A red flag would allow trustees and scheme managers to completely block a transfer request where there are tell-tale signs of fraud, while the amber flag would allow a transfer to be paused until a member has proven that they have taken scam-specific guidance from MaPs. The regulations will be reviewed within 18 months to ensure they continue to be effective against scammer tactics.

Since the introduction of the new transfer rules, a total of 856 members have received scam guidance from the MaPs as a result of an amber flag being raised by a trustee, growing from just 20 guidance sessions in December 2021 to 505 in March 2022.

Jon Greer, head of retirement policy at Quilter said: "Whilst it is early days the concern is that the number of referrals is increasing at a rapid rate. I fear a material proportion of people may be being required to take scam guidance sessions unnecessarily at a time when the ‘stronger nudge' to pensions guidance comes into force. We hope the stronger nudge will result in an increase in the number of Pension Wise sessions being taken up, but what we don't need is referrals to MaPS scams guidance where the member's experience is that it was an entirely pointless exercise.

"What's more, the lack of information provided to MaPS in terms of the reason for the amber flag being raised is concerning. If the information is not logged, and particularly whether there was an actual risk of a scam, it will be difficult to assess where scams are focusing and may provide an inaccurate picture of the effectiveness of the regulation.

"The drafting of the rules is not specific enough in its definition of overseas investments, which make no distinction between overseas investments that present a scam risk as opposed to those that don't. This appears to be resulting in pension savers being forced to take MaPS guidance before they are able to make a low risk transfer. The DWP has previously stated that the amber flag regulations were not intended to encompass low risk transfers and said it was actively engaging with industry representatives and considering amending the regulations."