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Fraud compensation and pension scams

By Michael Calladine
December 14, 2020
  • Pensions
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Last month, the High Court provided useful guidance on the scope of the Fraud Compensation Fund (FCF) in the Board of the Pension Protection Fund v Dalriada Trustees Ltd case. Pension scams are becoming increasingly common as a result of pensions liberation rules and it is not always immediately clear where victims can turn to for recourse.

Occupational pension schemes defrauded by “pension liberation” scams are, in principle, eligible for compensation from the FCF, a statutory fund set up in 2004 and managed by the Pension Protection Fund (PPF). While the FCF was established to cover any reduction in a scheme’s assets caused by dishonesty offences, it was not designed to address pension scams in the more recent sense. As the PPF has started to receive increasing applications for compensation from occupational pension schemes targeted by scammers, it sought guidance from the court on whether the FCF should pay out compensation to large occupational schemes used for scam operations.

From the judgment, it is clear that such schemes can be eligible for this form of compensation. The ruling runs through a number of technical points around the scope of the FCF. One such point is whether the employer of the relevant occupational pension scheme can be considered an “employer” in the context of FCF compensation. The judge held that a company could indeed be an “employer” notwithstanding that it may be without employees in the conventional sense (for example, with unremunerated directors, as here).

What we found particularly interesting about this case is how it ties in with the cross-regulatory approach followed by the PPF, Pensions Regulator, Financial Conduct Authority and Financial Services Compensation Scheme (amongst others) in recent years. In and of itself, this ruling does not necessarily move the law on in terms of protecting the victims of pensions scams. However, if the judge had found to the contrary, that the FCF did not cover scams involving occupational pension schemes, it may have created a gap in the compensation available to victims. This is because occupational pension schemes are not covered by the Financial Services Compensation Scheme.

It will be interesting to see if this case results in more compensation being paid out of the FCF. It will still be necessary for every application for compensation to satisfy and evidence each of the FCF’s eligibility requirements, which is not always an easy task.

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Michael Calladine

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