Trustees essential for pension schemes seeking FCF compensation

Trustees are essentially necessary for pension schemes to make claims from the Fraud Compensation Fund (FCF), according to The Pensions Regulator (TPR) and Pension Protection Fund (PPF).

Responding to a letter from WPC chair, Stephen Timms, regarding compensation for members of pension schemes that had been used as a vehicle for fraud in ‘pension liberation’ cases, a response from the two organisations acknowledged that a trustee was not technically necessary but needed to be in place “in practice”.

TPR and PPF pointed out that trustees played a crucial role in information gathering, seeking recoveries from the FCF and dealing with any compensation proffered, as the FCF must pay the amount to the scheme rather than to individual members.

As such, a trustee is generally required to determine how the compensation given to a scheme is divided up amongst its members.

TPR and the PPF warned that engaging with schemes without a trustee posed "significant legal and practical challenges".

Additionally, in response to a question regarding PPF’s engagement with schemes, it was explained that FCF’s main interaction is with TPR, rather than directly with schemes which might be eligible for compensation.

Noting that applications for compensation typically come from trustees, the letter said the FCF was reliant on “TPR’s governance process to appoint trustees” and would “substantively engage” with any trustees once they had been appointed.

The most recent letter added that TPR was reviewing past cases where no trustee had been appointed by the regulator or the courts, with a view to establishing whether these schemes have the potential to make an FCF claim.

In reference to TPR revisiting past responses, the letter explained: “When scams cases started to emerge over a decade ago, TPR was faced with a very high volume of potential investigations. In order to target finite resources most effectively, TPR prioritised resources to the highest risk cases. TPR also took steps to liaise with other agencies to disrupt this activity particularly where TPR did not take action.

“There were several reasons why TPR may not have taken action; often another agency was already acting, or was best placed to act, or the scam was no longer actively operating, and TPR had to consider whether the risks to savers would be mitigated by appointing a trustee.

“TPRs ability to appoint trustees was at this stage also complicated by the fact that some schemes did not have sufficient assets to enable TPR to appoint trustee, since their fees would need to be paid by the scheme.”

Furthermore, the letter confirmed that the estimated £350m in compensation claims that could be made as a result of the High Court ruling in the Board of the PPF vs Dalriada case did not distinguish between schemes with or without a trustee in place.

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