PLSA calls for ‘major review’ of Fraud Compensation Fund

In its response to a Department for Work and Pensions consultation on the fraud compensation levy, the PLSA called the government’s proposed changes “unreasonable”, arguing that they need “greater thought and consideration”.

It highlighted the scale of the proposed levy increases as “very significant”, and criticised the proposals to introduce them with only a few months’ notice as “wholly unreasonable”.

For some schemes, it could result in levy increases of £5m a year, it said.

The PLSA also rejected the proposed per-member charging structure, calling it unfair — especially to master trusts — and argued that the levy structure lacks proper protections such as those seen in the general levy.

The lack of protections will mean that members with the lowest levels of overall pension savings will be unfairly impacted, and a proper impact analysis on the sector is essential before the proposed changes come into effect, it argued.

Joe Dabrowski, deputy director of policy at the PLSA, said: “The impact of pension scams, shams, fraud and crime can have a devastating impact on savers and schemes. We believe it is vital that we have an effective regime to protect members and ensure they are compensated when victims of dishonest behaviours.

“The Fraud Compensation Fund has played an important part in the protection regime. Following the PPF v Dalriada Trustees Ltd High Court ruling, which has extended the original remit of the fund as set out by parliament, the consequence has been to increase eligible claims by around 2,000 per cent from circa £20m to up to £400m. Its remit is no longer fit for purpose.”

Dabrowski argued that eligibility overlaps and “interactions between the ways and means of claims falling on the various fraud compensation schemes and the economic levy” are now “far too complex and do not appear to serve savers and schemes well”.

“It is time that government and regulators consider a strategic review of the operation of the fraud protection schemes and the case for wider reform, including the potential for a single entity with responsibility for looking after victims of pensions scams,” he said.

“While measures introduced in recent years have closed many loopholes exploited by scammers, it is important to recognise that gaps remain — for example, with online harms — and failures in the past regulatory system have directly led to the current volume of claims.”