The High Court has been asked to clarify whether the Fraud Compensation Fund, managed by the board of the Pension Protection Fund, could pay compensation to victims of pension scams.
In a case heard in July, brought by the PPF and Dalriada Trustees, the claimant asked for guidance from the court on how to interpret the legislation that created the FCF.
The FCF was created by the Pensions Act 2004, and was set up specifically to support pension schemes that have suffered losses through acts of dishonesty.
While the PPF has been collecting a fraud compensation levy during the past few years for the FCF — £4.3m in 2018 and £4.8m in 2019 — it did not pay out on any claims in 2019.
Its latest annual report stated “while there have been significant claims relating to pension liberation cases, the eligibility of the claims and the FCF’s liability remains unclear”.
According to the document, the pensions lifeboat received four applications for claims amounting to £35.4m in 2018–19, “but for which there is uncertainty as to their eligibility and to the validity of the amounts claimed”.
A PPF spokesperson said: “A number of claims have been made to the FCF to compensate members of scam schemes. Scam schemes weren’t prevalent when the legislation setting up the FCF was written, so it wasn’t designed with such scams in mind.
“In collaboration with Dalriada Trustees, we’re seeking clarification from the courts on how to interpret the technical aspects of the legislation governing the FCF. In applying to the court in this way, our overriding goal has always been to give certainty to those caught up in this situation.”
John Wilson, member of the Pension Scams Industry Group, said the case was a test case “to determine whether or not the legislation, as it currently exists, is sufficient for people who have been pension scam victims to make claims against the FCF and receive compensation”.
Mr Wilson explained if the High Court finds the legislation is not sufficient, the judges are expected to point out “what changes would need to be made to introduce eligibility for pension scam victims”.
“If legislation is required it would be a matter for the Department for Work and Pensions and for the government to decide if it would change the framework of the FCF. But this first step is to determine that,” Mr Wilson said.
He said, as it stands, the FCF would compensate members of occupational pension schemes who have suffered when assets have been misappropriated from their schemes, including individuals with defined contribution pension savings.
Levy not enough
If the case is successful in demonstrating that the FCF can be used to pay redress to scam victims, a funding solution will have to be found.
According to the PPF’s annual report, the FCF has £19.1m of money market funds, resulting from the levy collected in the past few years.