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.
Mr Wilson noted if “the High Court declares that there are victims of pension scams who would be eligible for redress from the FCF, there would need to be a further discussion between the PPF, the DWP and the government as to how the FCF could be funded”.
He explained the amounts involved in pension scams — even though not all of them are reported — reached millions of pounds.
“In the past couple of years, there have been at least two reported cases of individual pension scheme members losing £1m worth of pension rights. The average is a lot lower, but when you add all that up we could be looking at potential redress claims of millions,” he said.
According to data from the Pensions Regulator and the Financial Conduct Authority, victims of pension scams lost an average of £82,000 to fraudsters in 2018, equivalent to 22 years’ worth of savings evaporating within 24 hours.
The increase in pension scams has led the Work and Pensions committee to launch an inquiry on this topic, as part of a broader work looking into the impact of pension freedoms.
Andy Agathangelou, founder of the Transparency Task Force — which had previously made a formal request for this inquiry — is looking forward to clarity on how the FCF can be used to support scam victims.
He said: “Given that the FCF advertises that its purpose is to ‘pay compensation to members of eligible work-based schemes where the employer is insolvent and whose schemes have lost out financially due to dishonesty’, it is somewhat unsatisfactory that the FCF still seems unclear about their obligations, 16 years after parliament took decisive action to protect the public by bolstering the robustness of the UK’s pensions system.”
The High Court is expected to have a ruling on the case in October as it is currently in summer recess.
maria.espadinha@ft.com
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