The fraud compensation system needs a major review to ensure it works for savers and schemes, the Pensions and Lifetime Savings Association (PLSA) has said in its response to DWP’s consultation on the Fraud Compensation Levy.
The PLSA is supportive of the Fraud Compensation Fund, current arrangements are no longer ‘fit for purpose’ and the current proposals and timescales to implement levy changes are ‘unreasonable’ and need greater thought and consideration.
The PLSA believes that the specific proposals – in relation to the Fraud Compensation Levy – contain numerous flaws:
- The scale of increases in the levy for all schemes is very significant, and the proposal to introduce them with only a few months’ notice is wholly unreasonable. For some schemes this will result in fraud levy increases of over £5m per annum.
- The per-member charging structure creates an unfair distributional impact of levies and will unduly impact mass membership schemes (such as Master Trusts).
- The levy structure lacks protections, such as those in the General levy (which exempts savers with <£100 in pension), which will mean members with the lowest levels of overall pension savings will be unfairly impacted.
- Given the significant increase, we do not believe it is appropriate to proceed without carrying out a proper impact analysis on the sector.
The significant support the Government has made available for the PPF to administer the claims on the FCF, and current industry levies, removes the risk of the Fund having insufficient funds to meet claims in the near future.
It is important therefore that before proceeding with the proposals the Government undertakes a strategic review of the Fraud Compensation Fund, the distribution of its costs, its overlap with other bodies, and whether the current regulatory regime best suits the needs of savers and schemes and is genuinely fit for purpose.
Joe Dabrowski, Deputy Director Policy, PLSA said: “The impact of pension scams, shams, fraud and crime can have a devastating impact on savers and schemes. We believe it is vital that we have an effective regime to protect members and ensure they are compensated when victims of dishonest behaviours.
“The Fraud Compensation Fund has played an important part in the protection regime. Following the PPF v Dalriada Trustees Ltd High Court ruling – which has extended the original remit of the Fund as set out by Parliament – that the consequence has been to increase eligible claims by around 2,000% from c.£20m to up to £400m. Its remit is no longer fit for purpose.
“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.
“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.”
Mark Smith, Senior PR Manager
020 7601 1726 | [email protected]
Steven Kennedy, Senior PR Manager
020 7601 1737 | 07713 073024 | [email protected]