The Department for Work and Pensions (DWP) has launched a consultation on two technical changes to the Fraud Compensation Fund (FCF) and the Pension Protection Fund (PPF) regulations.

According to the consultation, the PPF has been notified that around 70 to 85 per cent of the schemes potentially in scope for FCF compensation have exhausted most or all their assets.

The DWP explained that such schemes with exhausted assets pose "significant challenges" for trustees in making and progressing a FCF application, causing potentially successful claims to stall, increasing the overall claim and prolonging uncertainty for victims.

Furthermore, it pointed out that most of these schemes are run by independent trustees (IT) appointed by The Pensions Regulator (TPR) following the discovery of potential dishonesty, with these trustees incurring their own costs which, in the absence of any recoveries from the statutory employer or otherwise, can only be met using the scheme’s assets.

In light of this, the DWP suggested that these schemes require interim funding to cover costs such as trustee, legal and accounting fees, to enable the trustees or managers of such schemes to investigate the dishonesty, gather evidence and make recoveries.

The proposed changes would therefore introduce an additional prescribed liability that the board of the PPF can make an interim payment for in order to cover scheme fees and costs while FCF claims are progressed.

In addition to this, a further technical amendment would change PPF provisions with regard to surviving child dependants so that a gap between qualifying courses of more than one year does not result in the loss of PPF compensation.

Under the current PPF regulations, a child dependant who has a gap between qualifying courses of more than one year loses their entitlement to PPF survivors’ compensation which would otherwise be payable until the age of 23, with those who take a gap year often excluded as a result.

However, the DWP clarified that this was not the policy intention, with this amendment intended to correct the anomaly by amending the compensation regulations so that payment may be made to a surviving child dependant from the start date of a further qualifying course, provided that that course begins before the child reaches the age of 23.

The proposed legislation would be prospective and is expected to come into force in Spring 2023, with the consultation running until 9 September 2022.

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