The Pensions and Lifetime Savings Association (PLSA) has called on the Department for Work and Pensions (DWP) to delay the implementation of proposed changes to the Fraud Compensation Levy to allow for a review of the fraud compensation system.

The DWP recently launched a consultation on plans to increase the Fraud Compensation Levy ceiling for 2022/23 onwards, which would allow the Pension Protection Fund (PPF) to increase the levy rates to a maximum of 65 pence per member for master trusts and £1.80 per member for other eligible occupational schemes.

However, the PLSA said that whilst it is supportive of the Fraud Compensation Fund (FCF), current arrangements are “no longer fit for purpose”, warning that the DWP's proposals and timescales to implement levy changes were “unreasonable”.

In particular, the PLSA warned that the scale of increases in the levy for all schemes was “very significant”, suggesting that the proposal to introduce them with “only a few months’ notice is wholly unreasonable”, as, for some schemes, this will result in fraud levy increases of over £5m per annum.

Therefore, the association suggested that it was not appropriate to proceed without carrying out a proper impact analysis on the sector.

It argued that the per-member charging structure creates an unfair distributional impact of levies and will unduly impact mass membership schemes, such as master trusts.

Concerns were also raised in relation to a lack of protections when compared to the general levy, which exempts savers with less than £100 in pensions, with the PLSA warning that members with the lowest levels of overall pension savings could be unfairly impacted as a result.

More broadly, the PLSA emphasised that the government had made significant support available to the PPF to administer claims on the FCF, removing the risk of the fund having insufficient funds to meet claims in the near future.

In light of this, it emphasised the importance of undertaking a strategic review of the FCF, the distribution of costs, overlap with other bodies and regulatory regime, prior to implementing any changes.

The PPF previously increased the FCL on pension schemes to the the maximum level allowed under current regulations following a High Court ruling that found occupational pension schemes set up as part of a scam were eligible to claim on the FCF.

PLSA deputy director of policy, Joe Dombrowski, also estimated that this ruling will increase eligible claims by around 2,000 per cent, rising from £20m to £400m, arguing that the FCF remit is "no longer fit for purpose" in light of this.

“More importantly it is evident that the eligibility overlaps and interactions between the ways and means of claims falling on the various fraud compensation schemes and the economic crime levy are now far too complex and do not appear to serve savers and schemes well," he continued.

“It is time that government and regulators consider a strategic review of the operation of the fraud protection schemes and the case for wider reform, including the potential for a single entity with responsibility for looking after victims of pensions scams.

“Whilst measures introduced in recent years have closed many loopholes exploited by scammers, it is important to recognise that gaps remain – for example with online harms – and failures in the past regulatory system have directly led to the current volume of claims.”

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