TPR reviews schemes eligible for Fraud Compensation Fund

Notably, a trustee will be required for schemes seeking compensation.

TPR had been asked to clarify the conditions in which pension savers were eligible for compensation in a letter from Labour MP Stephen Timms, chair of the Work and Pensions Committee.

The letter, dated June 23, recognised that the High Court ruling in Board of the PPF vs Dalriada meant that many members of pension schemes used as a vehicle for a pension fraud could now be eligible for compensation, but added that there was additional uncertainty around cases where no independent trustee was appointed.

Where there may be the potential of making a FCF claim, TPR is reviewing these schemes with a view to assessing whether a TPR appointment should now be made

Charles Counsell, TPR

In response, TPR’s chief executive Charles Counsell, and PPF’s chief executive Oliver Morley, said schemes with no trustees and no identifiable assets can claim on the FCF, although engagement from the FCF with schemes without a trustee “poses significant legal and practical challenges”.

Trustee needed for compensation from FCF

While an application can be made in principle, any recoveries or compensation cannot be administered without a trustee in place.

“The way the FCF legislation is framed means a trustee needs to be in place in practice in order to progress applications and process compensation,” the letter stated. 

“Where there may be the potential of making a FCF claim, TPR is reviewing these schemes with a view to assessing whether a TPR appointment should now be made.

“The High Court ruling from last November may mean that some or all of these schemes may be able to make an application to the FCF.”

The letter adds that there are now “only a small number of schemes, that TPR are aware of, without TPR or court appointed trustees”, and that the absence of a trustee presents significant complications for FCF claims, as it creates difficulties in establishing the details around an alleged fraud and subsequent pursuit of recoveries.

It is also up to trustees to receive and then administer any compensation, as the FCF, by law, cannot pay compensation directly to members.

In cases where there is an existing trustee to contact, TPR will “consider writing to them where appropriate to make them aware of the FCF,” therefore leaving the decision as to whether to make an application to the FCF up to them.

Regulator explains lack of trustee appointments

In response to being quizzed on TPR revisiting past responses where the regulator did not appoint independent trustees, the letter explained: “When scams cases started to emerge over a decade ago, TPR was faced with a very high volume of potential investigations.

“In order to target finite resources most effectively, TPR prioritised resources to the highest risk cases. TPR also took steps to liaise with other agencies to disrupt this activity, particularly where TPR did not take action.

“There were several reasons why TPR may not have taken action; often another agency was already acting, or was best placed to act, or the scam was no longer actively operating, and TPR had to consider whether the risks to savers would be mitigated by appointing a trustee.

“TPR's ability to appoint trustees was at this stage also complicated by the fact that some schemes did not have sufficient assets to enable TPR to appoint trustees, since their fees would need to be paid by the scheme.”

To qualify for a claim, the scheme had to be occupational and linked to an insolvent employer and must have been the victim of dishonesty.

The letter verified that the approximate £350m in compensation claims expected for the FCF did not differentiate between schemes with or without a trustee in place.

In May, a compensation bill was introduced, paving the way for a potential loan from the Department for Work and Pensions to the PPF to cover FCF payments.

Sue Rivas, director of scheme services at the PPF, had previously said that the PPF was working with trustees to ensure that claims represented value for money, as they suspect that there are numerous cases where “going after the money will incur more costs than they’ll get back”.

The FCF was set up in 2004 and was designed to compensate pension schemes that suffered losses because of dishonesty. However, doubts over the eligibility of claimants have caused significant delays.

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

Since its inception, but FCF has only compensated 10 schemes to a value of approximately £5m.