The High Court has ruled that the Fraud Compensation Fund (FCF) may provide compensation to members who have fallen victim to scam schemes.
The FCF is a statutory fund established in 2004, which is managed by the board of the Pension Protection Fund (PPF) to provide support to occupational pension schemes that have suffered financial losses due to offences involving dishonesty.
The PPF was unclear whether pension savers falling victim to scam schemes were eligible for compensation from the FCF under existing legislation.
For clarity, it submitted an example claim to the court in which members were incentivised to transfer their pensions from genuine occupational pension schemes into a scam scheme and requested a ruling on whether the FCF could consider them eligible for compensation.
The High Court ruled in November 2020 that victims of scam schemes are indeed eligible for compensation from the FCF (provided the other, usual conditions for eligibility are met) and clarified certain principles for the FCF to apply in determining whether scam schemes are covered by its remit.
This outcome has been welcomed as a positive step towards protecting pension savers.
Following the hearing, the PPF released a statement confirming that it will now proceed with processing claims that it has already received and noted that this will take some time due to the level of investigative work required in such cases.
The statement also stressed that the FCF is intended as a last resort and that attempting to recover assets should always be prioritised over awarding compensation.
The ruling ties in with current cross-regulatory initiatives to protect victims of pension scams. The FCF may now provide a similar protection for members of occupational pension schemes that the Financial Services Compensation Scheme may offer to members of personal pension schemes.
The industry will now wait to see whether the ruling leads to a significant increase in compensation being paid out by the FCF.
The PPF’s most recent annual reports and accounts (published in October 2020) indicated that it had received applications with an estimated aggregate claim value greater than the total amount of compensation that the FCF has paid out since its inception.
Inevitably, an increase in the number of successful claims for compensation may see the levy increased to fund them. For now, there’s no announcement by the PPF about what the FCF levy will be in response to the court hearing.