Fraud Compensation Fund (FCF)
The Fraud Compensation Fund became operational on 1 September 2005 and replaces the Pensions Compensation Board. It is operated by the Pension Protection Fund.
It was established to provide compensation to occupational pension schemes that suffer a loss as a result of dishonesty. It applies to most defined benefit and defined contribution occupational pension schemes.
Compensation from the FCF may be paid where all of the following have been met:
- the scheme is an occupational pension arrangement;
- the employer is insolvent or is unlikely to continue as a going concern;
- there is no likelihood of the scheme being rescued; and
- the value of the scheme's assets has been reduced as a result of dishonesty.
The FCF should be a last resort. Before approaching the FCF, an applicant should have made appropriate attempts to seek recoveries of the loss from other sources.
For example, if an insolvent employer has failed to pay contributions deducted from an employee's wage into an occupational pension scheme, an application for recovery may be made to the DTI's Insolvency Service.
Claims to the FCF can be made by trustees, managers, members, beneficiaries and scheme administrators. It should be noted that compensation, if awarded, is likely to be paid direct to trustees or managers of the scheme only, regardless of who makes the application.
An application for fraud compensation must be made in writing:
- within 12 months of the employer's insolvency event; or
- where there is no insolvency event, 12 months from the date the trustees or managers ought to have known that the employer was not able to continue as a going concern.
If an application is made after these deadlines, it can still be investigation but only where evidence is provided to justify the delay.
If the application is successful, compensation will be paid. As a general rule, the amount of compensation will be the difference between:
- 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
- the value of the assets immediately before the application date as reported by an accountant.
