New red and amber warnings on risky pension transfers come into force today following a Department for Work and Pensions initiative.

The new rules mean pension providers are obliged to add a red or amber ‘flag’ against any risky planned pension transfers.

The warnings are designed to flag up potential transfer scams and warn transferees that moving their pension pot to certain types of scheme may put their money at risk.

A ‘red flag’ warning will remove the statutory right to transfer while an ‘amber flag’ warning can be used to pause a transfer until the scheme member can prove they have taken scam specific guidance from the Money and Pensions Service (MAPS). 

A green signal means the statutory right to transfer still applies but this will now only apply to public service pension schemes, Master Trust schemes and collective money purchase schemes.

The DWP will review the new regulations within 18 months.

Becky O’Connor, head of pensions and savings at online platform Interactive Investor, said: “The new legislation has the potential to seriously reduce pension scams, as the statutory right to transfer was effectively enabling scammers.

“By making the ability to transfer more conditional and setting in place clear barriers, it will be very difficult for scammers to get people to transfer their cash. There is a risk that the new system could slow down some legitimate transfers, although this should not be a significant problem once the regulations have bedded in. 

“It is important that freedom to choose the right authorised and regulated provider is maintained for people who want to move their pension for good reasons, like seeking better value or a wider range of investments."

Tom Selby, head of retirement policy at AJ Bell, said: “New rules coming into force today provide savers with an extra layer of protection from the scourge of pension scams. If applied proportionately, they will hand more power to providers in blocking suspicious transfers while allowing the vast majority of legitimate transfers to go through as normal.

“The one lingering concern is the extent to which all providers will apply common sense when interpreting the rules – specifically around the so-called ‘amber flag’ warnings.”

He added that “over zealous” pension schemes could try to block transfers unnecessarily and leave themselves open to complaints to the Financial Ombudsman.