Following a public consultation last year, the Department for Work and Pensions (DWP) has today laid regulations amending the Fraud Compensation Fund (FCF) annual levy ceiling in Parliament.
The regulations raise the ceiling to £0.65 per member for Master Trusts and £1.80 per member for other eligible occupational pension schemes. The regulations are proposed to come into force on 1 April 2022.
Following a court ruling in November 2020, which clarified that occupational pension schemes set up as part of a scam were eligible to claim on the FCF, we’ve received claims totalling over £47.3m. We’re expecting many more claims to come and are aware of more than 100 pending applications, totalling £358.1m as at 31 March 2021.
Our Annual Report and Accounts 2020/21 confirmed that the FCF had assets of £33.9m.
Although we raised a levy in 2021/22, the amount raised won’t be enough to pay these claims if they’re eligible for compensation.
Why we’re raising a levy in 2022/23
We’re scrutinising the claims very carefully as we work through them, to make sure they’re eligible and all reasonable recoveries have been made. Even so, it’s clear that we’ll need significant extra funding to pay eligible claims.
Last year, Parliament approved legislation to allow DWP to give us a loan. The loan will mean we can pay FCF compensation to schemes whose members are victims of occupational pension scheme fraud. But it’s only to cover any shortfall that arises after we’ve collected the maximum levy available to us.
This means that, following the increase in the levy ceiling, we’ll raise a levy in 2022/23 of £1.80 per member of eligible schemes, and £0.65 per member for Master Trusts.
We understand the impact this will have on schemes, but we need to do this if we are to pay eligible claims without unnecessary delay and meet the government’s repayment schedule for the loan.
It’s previously been suggested that the Pension Protection Fund (PPF) should fund the FCF, in light of its assets and reserve. PPF funds are entirely separate from the FCF funds, and relate to the protection the PPF provides to people with a defined benefit pension when their employer becomes insolvent. There can be no lawful transfer of funds between the PPF and the FCF.
Our next steps
The Pensions Regulator will collect the levy on our behalf, together with other fees and levies that all pension schemes must pay.