Cymraeg

Fraud Compensation Fund

The Fraud Compensation Fund was established under the Pensions Act 2004 to provide compensation to occupational pension schemes that suffer a loss that can be attributable to dishonesty. The Fraud Compensation Fund became operational on 1 September 2005 and replaces the former Pensions Compensation Board. It applies to most defined benefit and defined contribution occupational pension schemes – apart from those specifically excluded in the Pensions Act 2004. It does not apply to state retirement pensions.

These web pages provide general information about the Fraud Compensation Fund. It is not an authoritative statement of law. Full details on the basis on which fraud compensation can be paid are set out in the Pensions Act 2004 and regulations made under it the Occupational Pension Schemes (Fraud Compensation Payments and Miscellaneous Amendments) Regulations 2005.

The Fraud Compensation Fund is a statutory fund run by the Board of the Pension Protection Fund (the Board), a statutory corporation established under the Pensions Act 2004.

The Fraud Compensation Fund is funded from the Fraud Compensation levy raised on eligible pension schemes.

When may compensation be paid?
How is the Fraud Compensation Fund funded?
Who can make an application to the Fraud Compensation Fund?
How are applications made?
How are applications handled?
How long will the Pension Protection Fund take to make a decision on an application?
How will fraud compensation payments be made?
What happens if money is needed to pay pension scheme liabilities before a decision has been made on an application?
Can a decision in relation to the application or payment be reviewed?

When may compensation be paid?
Compensation from the Fraud Compensation Fund may be paid where all of the following have been met:

the scheme is an eligible scheme – most occupational pension schemes are eligible apart from those listed in regulation 2 of the fraud compensation regulations
either a qualifying insolvency event has occurred or, where an employer cannot have an insolvency event, it is known that the employer is unlikely to continue as a going concern;
there is no likelihood of a scheme rescue, a notice to that effect has been issued and has become binding;
the value of the scheme’s assets has been reduced and the Board is satisfied that the loss can be attributable to a dishonest action or omission including the intent to defraud;

Where the pension scheme is a multi-employer pension scheme its treatment in relation to fraud compensation payments will depend on its structure. Information on how multi-employer schemes are treated can be found in regulations 14-20 of the the Occupational Pension Schemes (Fraud Compensation Payments and Miscellaneous Amendments) Regulations 2005.

Before a fraud compensation payment can be made, the Board must be satisfied that the applicant has made appropriate attempts to seek recoveries of the loss from other sources to the extent that they might do so without disproportionate cost and within a reasonable time. The Fraud Compensation Fund should be considered as a last resort.

If an insolvent employer has failed to pay some contributions deducted from employees wages into an occupational or personal pension scheme, an application for payment may be made to the Department of Trade and Industry’s Insolvency Service. In addition, a claim for unpaid contributions payable by the employer on his own account, in respect of the 12 months ending on the day before the employer became insolvent may also be recoverable.

For more information please go to the website of the Insolvency Service.

How is the Fraud Compensation Fund funded?
A levy is raised, when appropriate, and paid by all eligible occupational pension schemes to cover all payments made from the Fraud Compensation Fund to ensure that the Fund’s assets are sufficient to cover its liabilities. The assets held in the Fund will be managed by the Board in accordance with a Statement of Investment Principles.

Who can make an application to the Fraud Compensation Fund?
Trustees, managers, members, beneficiaries and administrators of occupational pension schemes, as well as their representatives, can make an application. It should be noted, however, that when a decision is made by the Board to approve an application for fraud compensation, legislation allows the Board the discretion to make the payment, or payments direct to trustees or managers of the pension scheme only, regardless of who makes the application.

How are applications made?
All applications for fraud compensation must be made in writing and application forms can be downloaded from the forms page of this website Alternatively, applications forms can be obtained by contacting the Pension Protection Fund directly.

Applications must also be made within the ‘authorised period’ – that is either:

the period of 12 months from the date of the employer’s insolvency event; or
where there is no insolvency event the 12 month period from the date the trustees or managers (or the scheme actuary or accountant) knew, or ought to have known, that the employer was not able to continue as a going concern.

Where an application is made outside the ‘authorised period’ then it can still be accepted for investigation but only where evidence is provided to justify the delay. Applicants are requested to provide as much evidence as possible to support the application for compensation.

Applicants are legally required to provide the required information which has been set out on the application form, otherwise it may not be possible to assess the application. Where an applicant cannot provide information, a detailed explanation should be provided on the application form.

The information provided should enable a determination to be made on whether the pension scheme is eligible and whether the conditions apply for an assessment of the application to begin. Documentary evidence to support the application is also requested so that the assessment can take place as soon as possible.

Determination of the application is dependant on reviewing the evidence received to support it – therefore the application form also asks for the applicant’s consent for information to be gathered from third parties where it is felt that such information is necessary before a determination can be made.

How are applications handled?
All applications for compensation from the Fraud Compensation Fund will be acknowledged.

The application and all supporting information will be carefully considered. The Pension Protection Fund may contact the applicant, or any other interested parties, to seek further information.

When all information necessary to inform the decision has been gathered and considered the Board will make a decision and write to the applicant or the applicant's representative with the decision and, where appropriate, an explanation of the decision. If a payment of compensation is to be made to the trustees or managers, the letter will include all appropriate details.

How long will the Pension Protection Fund take to make a decision on an application?
The Board will always try to reach its decision as quickly as possible, but every application must be thoroughly examined and considered on a case by case basis. Delays may occur because of factors outside the control of the Board, for example:

the applicant may be asked to pursue recoveries;
evidence from third parties may be required and this could be difficult and time consuming to collect; or
the outcome of legal proceedings may be required before a final decision on an application can be made.

The applicant will be kept informed about the progress of the application.

How will fraud compensation payments be made?
If the application is successful, the Board will calculate the amount of fraud compensation it will pay. As a general rule, the way in which the amount of compensation due will be the difference between i&ii as follows:

(i)the value of the assets as stated in the audited scheme accounts, or the Pension Protection Fund valuation, which immediately precede the loss, or if neither of these exist, the value of the assets on the date immediately preceding the loss as reported by an accountant - adjusted to take account of any alterations in their value between the date immediately preceding the loss and the application date;

and

(ii)the value of the assets immediately before the application date as reported by an accountant.

The amount of the payment, or aggregate amount if there is more than one, must not be more than the difference between the amount of the relevant reduction in assets and the amount of any recoveries obtained before the settlement date. Any interim payments will also be taken into account when calculating the final payment (see below).

Full details of how fraud compensation payments can be calculated is set out in section 185 of the Act and the associated regulations.

Before a fraud compensation payment is made, a letter outlining the amount of payment and the terms under which it will be paid will be sent to the trustees or managers of the scheme (with a copy of the letter to the applicant, if different). The letter will also include information on how the Board may recover any fraud compensation payments paid where it is aware that subsequent recoveries to the pension scheme have been made from other sources.

What happens if money is needed to pay pension scheme liabilities before a decision has been made on an application?
In certain circumstances, the Board may make interim payments of fraud compensation before its enquiries are complete.

Can a decision in relation to the application or payment be reviewed?
Where an applicant, representative, or other interested person has a query about a decision they should contact the Pension Protection Fund Stakeholder Support Team on 0845 600 2541. Often matters can be sorted out quickly and easily if dealt with in this way.

However, where an applicant, representative or other interested person is not satisfied with the answers received, a formal request for a review of a decision can be made. Generally speaking, an application to request a review of a decision can be made in within 28 days of the date the decision is received. Information on how and when to request a review will be issued with any decision letter.