Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill

Around 97% of LCF bondholders invested less than £85,000 and will not reach the compensation cap under either the Government’s scheme or the FSCS. The Government expect to pay out around £120 million in compensation to around 8,800 bondholders in total and are committed to ensuring that the scheme has made all payments within six months of this Bill securing Royal Assent.

As colleagues will be aware, this is a two-measure Bill, the second clause of which concerns the Department for Work and Pensions and involves loans to the board of the Pension Protection Fund. Clause 2 amends the Pensions Act 2004 by inserting a new section that will give the Secretary of State a power to lend money to the board of the Pension Protection Fund.

The Pension Protection Fund manages the Fraud Compensation Fund, which pays compensation to occupational pension schemes that have lost out financially due to dishonesty. When set up in 2004 by the Blair Government, the PPF and the FCF did not envisage that pension liberation schemes were in scope for FCF payments. This clause will allow compensation to an estimated 8,806 individuals who have been defrauded following the pronouncement of the recent Court judgment in the Dalriada case.

Pension liberation fraud involves members being persuaded to transfer their pension savings from legitimate schemes to fraudulent schemes, with promises of high investment returns or access to a loan from their pension scheme before the age of 55 without incurring a tax charge. The Pensions Regulator has now placed professional pensions trustees in charge of the affected schemes. Those trustees are seeking compensation on behalf of scheme members through the Fraud Compensation Fund.

Following receipt of a significant number of applications, the Pension Protection Fund sought guidance from the High Court in a test case on which schemes should be eligible for the Fraud Compensation Fund. The Court judgment in the case of the Pension Protection Fund vs. Dalriada was pronounced on 6 November 2020, and the High Court concluded that such pension liberation schemes would be eligible, subject to meeting eligibility criteria. The Government have decided to fully accept the Court’s judgment on this and are committed to ensuring that all those who have been victims of pension liberation schemes are able to claim through the Fraud Compensation Fund. However, it is estimated that claims will exceed £350 million, which is far greater than the £26.2 million of assets currently held in the Fraud Compensation Fund, hence the requirement for clause 2 of the Bill and the action that the DWP and the Government are taking.

This is a necessary, urgent and important Bill which will ensure financial protection and fair outcomes for those falling victim in these particular circumstances. My hope and expectation is that the Bill will receive widespread support, and I commend its contents to the House.