DWP proceeds with Fraud Compensation Levy ceiling rise despite opposition

The Department for Work and Pensions (DWP) has confirmed that it will proceed with plans to increase the Fraud Compensation Levy (FCL) ceiling to 65 pence per member for master trusts and £1.80 per member for other eligible occupational schemes.

The increase, which will take effect from the 2022/23 levy year onwards, was subject to a consultation, with the majority of respondents opposing the rate of increase.

In total, the DWP received 11 responses to its consultation, with nine respondents expressing their opposition for the funding proposal outlined in the consultation, nine calling for a structural review of the Fraud Compensation Fund (FCF) and/or FCL, and seven suggesting that the increase should be delayed pending the review.

In its consultation response, the government stated that it acknowledged the ‘strength of feeling’ amongst respondents for a review.

However, it said that the government was not persuaded that an urgent review was required.

“Its immediate priorities are to ensure the FCF is properly funded through the government loan so that all legitimate claims can be met as promptly as possible, and to put in place robust arrangements for the recovery of that loan,” the consultation response stated.

“Taxpayers in general, not all of whom benefit from the provision of occupational pensions, are entitled to expect the government and the Pension Protection Fund (PPF) to ensure that repayment of the loan begins without delay using existing FCL recovery machinery, and to recover the loan in full within a reasonable period.

“That is why the government proposes an increase in the FCL ceiling from 2022/23, with full repayment of the loan anticipated by 2030/31.”

However, the government said that it will consider the possibility of a review over the medium term, alongside ongoing monitoring of the FCL ceiling.

Commenting on the government’s response, Pensions and Lifetime Savings Association (PLSA) deputy director of policy, Joe Dabrowski, warned that the new rates could amount to a more than £5m a year increase for some schemes.

“The PLSA fully supports victims of pension scams and shams being fairly compensated as part of our mission of better retirement outcomes for everyone,” he commented.

“It is vital that we have an effective regime to protect members and ensure they are compensated when victims of dishonest behaviours.

“However, the new rates confirmed by the government for 2022/23 will amount to a more than £5m per annum increase for some schemes, give very little notice to schemes and – because they ask automatic enrolment master trusts to pay a disproportionate amount in contributions – will ultimately see the costs borne unfairly by savers with the lowest balances.

“The PLSA has repeatedly argued that the fraud compensation regime is not fit for purpose and requested a one-year delay to the levy hike to allow time for a proper review to build a more robust and future-proofed compensation regime that offers protection for all pension savers.

“We are disappointed the government has seen fit to ignore these concerns and follow through with the unfair increase, despite near universal opposition amongst respondents.”

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