Fraud Compensation Fund to begin processing cases within 18 months

The FCF, set up within the Pension Protection Fund in 2004, was designed to compensate pension schemes that suffered losses as a result of dishonesty. 

However, since its inception, doubts about the eligibility of claimants have caused significant delays to its operations. The FCF did not pay out a single claim in 2019, despite the PPF collecting a fraud compensation levy amounting to £4.8m that year.

In its entire 16-year history, the FCF has so far compensated only 10 schemes to a value of around £5m.

Although we’re at the very early stages of considering the applications we have, we would hope that over maybe the next year to 18 months we’ll be able to progress those applications through to settlement, provided of course that compensation is payable

Sue Rivas, PPF

The principal difficulty concerned scam schemes, vehicles set up specifically for the purposes of fraud, which may not have had a traditional link to an employer.

That issue was settled in November last year after the PPF and Dalriada sought clarity from the High Court, which ruled that any occupational scheme liable to pay the FCF levy could qualify for compensation in the event of fraud.

This judgment brought traditional defined benefit and defined contribution schemes into scope, as well as scam schemes, though personal pension scams remain ineligible as the fund is set up to compensate defrauded schemes, not individual members directly.

That ruling was “very good news for members in such schemes”, David Shaw, director of strategy and policy at the PPF, told the meeting on Monday. 

“We also believe it to be the start of a relatively big step change for us in terms of the running of the fund,” he said, and the FCF has “already received around seven claims with a potential value of more than 40m from schemes in this sort of circumstance”.

Sue Rivas, director of scheme services at the PPF, said that more claims are expected in the very near future, while her team is currently handling nine applications from trustees that “represent a range of scenarios covering different levels of complexities, and some applications are more advanced than others”.

“These early cases will test and shape our guidance and processes further,” she said, and could be processed within the next 12-18 months.

Reacting to that news, Conservative peer Baroness Ros Altmann, a member of the All-Party Parliamentary Group on Pension Scams, said: “I do hope that the FCF will begin paying scam victims as soon as possible. The money was set aside for the purposes of fraud and these people have suffered as fraud victims.

“The PPF is an excellent organisation and has been paying PPF and Financial Assistance Scheme members successfully and efficiently for many years, and should be well placed to pay fraud victims too.”

What qualifies, what doesn’t

Explaining the state of the law since the High Court’s clarification, Rivas said that qualifying schemes had to be occupational and linked to an insolvent employer. 

The scheme must have been the victim of dishonesty, and only if those three tests have been met will the FCF move on to consider the value of the loss incurred.

“We expect this aspect to be complex, we will have to work through financial information and link the individual acts of dishonesty to losses.”

The FCF acts as a last resort, so will only step in when the trustee has pursued all other options for reclaiming lost money, she continued. Even then, “we’re going to be working very closely with trustees that are pursuing recoveries just to make sure that work represents value for money, because sometimes we suspect that going after the money will incur more costs than they’ll get back”.

While the FCF can compensate schemes for expenses resulting from fraudulent activity — for example, legal fees associated with court cases — it cannot pick up the cost of the scheme’s general administration.

“Although we’re at the very early stages of considering the applications we have, we would hope that over maybe the next year to 18 months we’ll be able to progress those applications through to settlement, provided of course that compensation is payable,” Rivas said.

“We might be able to action some sooner. But as this is all very new to us, we need to make sure that we get it right.”

She acknowledged that “some of the investments are very complicated, as is following the money trail”.

“So working our way through these might take a little longer while we build experience,” she added.

“We are, however, really conscious of the fact that members have lost significant amounts of their pension savings. So we will be doing all we possibly can to process those applications as speedily as possible.”

Claim timetable limit criticised

Some attendees at the meeting were left disappointed when they learned that applications to the FCF must be made within 12 months of the fraudulent activity having been discovered.

David Shaw said that this was the limit set out in legislation and was a matter for the Department for Work and Pensions to comment on, but added that it has not so far “proved a problem or a barrier to a claim proceeding”.