TTF Blog: 17 August 2020

Will the 'Pensions Lifeboat' finally save Pension Scam victims?

by Alex Varley-Winter, TTF’s Head of Media Relations & Investigative Reporting

As we await the commencement of the Work and Pensions Committee’s inquiry into pension scams, tens of thousands of pension scam victims around the country will be wondering whether the multi-£billion Pension Protection Fund, which can provide a ‘lifeboat’ to pension savers when a fund becomes insolvent, might eventually come to their rescue.

Sustained by a levy, the Pension Protection Fund has been operating the Fraud Compensation Fund (FCF) since the Pensions Act of 2004 — which brought it into existence on 1st September, 2005. The FCF was set up specifically to support pension schemes that have suffered losses through ‘acts of dishonesty.’

In the 2018/19 financial year, the Fraud Compensation Fund took £5m in levies, in one year alone. Surely this means it has the resource, responsibility and remit for taking care of pension scam victims, if it can be shown that dishonest conduct by others has played a part in their loss? Particularly when you consider that, at the end of March 2019 the Pension Protection Fund as a whole had £32 billion in assets under management and £6.1bn in reserves.

However, it is unclear how many pension scam victims have been saved by the “Pensions Lifeboat”, if any.

Referring to ‘Contingent Liabilities for possible claims on the FCF’, the 2018/19 annual report stated: “The value of possible future claims on the FCF at 31 March 2019 was estimated at £nil (2018: £nil).”

It wasn’t that nobody had been making claims for fraud losses, because the report added: “We have received four applications for claims amounting to £35.4m but for which there is uncertainty as to their eligibility and to the validity of the amounts claimed. Therefore these have not been included.”

And, further: “We are in close dialogue with trustees of a number of schemes which have potentially significant claims.”

It is not clear to us at Transparency Task Force, whether these cases related to pension scam victims, or indeed whether the Fraud Compensation Fund has helped any pension scam victims since its foundation. We hope they clarify this shortly.

Andy Agathangelou, Founder of the Transparency Task Force comments: “Given that the Fraud Compensation Fund advertises that its purpose is to ‘pay compensation to members of eligible work-based schemes where the employer is insolvent and whose schemes have lost out financially due to dishonesty’, it is somewhat unsatisfactory that the FCF still seems unclear about their obligations, sixteen years after Parliament took decisive action to protect the public by bolstering the robustness of the UK’s pensions system.”

He added: “The most obvious questions that come to mind are:

“- Why does the FCF seem unclear on who can claim what from them; and how much they might claim?

“- If the FCF has helped some pension scam victims, have all trustees already considered this avenue for compensation; and if not, why not?

“- If the FCF hasn’t yet helped pension scam victims, will Parliamentarians intervene to demand justice for their constituents that have suffered life-changing losses?”

Pension scam victims have been treading water waiting for the “pensions lifeboat” to arrive, enduring shattered dreams for years on end.

The Transparency Task Force hopes that current proceedings in the Hight Court between The Board of the Pensions Protection Fund and Dalriada Trustees Limited will at last lead to the ‘lifeboat’ being launched.

Inevitably there will be technical hurdles to overcome but it isn’t just scam victims that want justice – if Parliamentarians, the Department for Work and Pensions and The Pensions Regulator all focus on the strategically vital task of restoring trust in our pensions system, all technical challenges can be overcome.

Sue Flood, a pension scam victim who is a member of TTF’s Advisory Group, has been following proceedings closely.

She says:“I know from painful personal experience that pension scam victims can go around and around in circles, struggling to find help, but rarely get it. Way back in 2004, Parliamentarians tasked the Fraud Compensation Fund to help the pension-saving public who have been cheated.” She believes Parliamentarians will be ‘more than a little curious’ as to why scammed constituents haven’t been offered what they need?

Update – 18 August 2020
Ian Neale of Aries Insight  follows up every new development in pensions, and contacted TTF after reading this blog. He observes that the fraud compensation levy is currently set at 25p per member and was suspended (not charged) from 2013/14 to 2016/17.
 
Further, Ian writes:
 
“I believe the primary reasons why few [fraud] compensation claims have been paid, or indeed made, are:
 
    1. Strict eligibility conditions: first it only covers occupational pension schemes (ie not SIPPs); second the scheme assets must have been depleted by an offence involving dishonesty; and third, the sponsoring employer must either have had a “qualifying insolvency event” or be unlikely to continue as a going concern (in which case a scheme failure notice has to be issued).  Identifying the appropriate employer can itself be a lengthy process.
    2. The FCF will only consider an application after the trustees have exhausted all other possible sources for recovery, including the Insolvency Service.

Finally, he suggests: “As is evident in other disputes and compensation proceedings, especially where fraud is alleged, the process can take many years and doubtless sometimes runs into the sand for want of money if not official zeal.”

In other news...

Regulators Seek Your Views on how they Handle Complaints

The FCA will “not interview witnesses or complainants” but would “carry out a common-sense analysis” of complaints against itself, according to a Consultation launched by financial regulators last month.

The Bank of England, Financial Conduct Authority and Prudential Regulation Authority are all consulting on how they handle complaints, following Mel Stride MP’s criticism of substantial complaints-handling delays at the FCA.

Interestingly, the FCA discusses ‘goodwill payments’ in the consultation. A complainant experiencing ‘a very high level of distress or inconvenience’, as a result of a ‘major failure in our processes’ falls into the highest band for ‘distress’ – £500-£1000.

Compensation for financial loss, meanwhile, would be capped at £10,000, except in ‘exceptional circumstances’  and the Regulator would need to be the ‘primary’ cause of that loss to qualify for compensation: “The mere fact that one of us may have been at fault in some way does not mean that the Regulator should be considered to be the sole or primary cause of loss which was the result of the actions of a financial services firm”, they write.

Annex 2 discloses the full Draft Complaints Scheme Document and shows what categories of complaint they probe.

  • a. mistake;
  • b. lack of care;
  • c. unreasonable delay;
  • d. unprofessional behaviour;
  • e. bias;
  • f. lack of integrity.

However :

“Our investigations are desk-based and we do not interview witnesses or complainants.

Who can respond to the consultation?

The FCA writes that “this consultation may be of interest to anyone who is a potential or actual complainant under the Scheme. This includes regulated businesses and consumers of financial services.

“It may also interest consumer advocates and action groups, trade associations, and politicians, among others.”

The regulators’ five questions in Annex 1 read as follows:

“Q1:Do you agree the language in Annex 2 is more accessible than the language of the current Scheme? Will the Scheme as proposed achieve the objectives set out in paragraph 3.3?”*

*”3.3The benefits of making the Scheme more accessible include:• it being less time-consuming for complainants to work out how to use the Scheme;• more complainants having realistic expectations of what the Scheme can do for them; and• we and the Complaints Commissioner needing to spend less time explaining the Scheme and dispelling misunderstandings.”

“Q2:Do you have any comments on our approach to ex-gratia compensatory payments for distress or inconvenience?

Q3:Do you have any comments on our approach to ex-gratia compensatory payments in respect of financial loss?

Q4:Do you agree with our proposals for implementing the new Scheme?

Q5:What impact do you think our proposals in this consultation paper will have on persons who share protected characteristics?”

Interested groups or individuals have a deadline of 14th September to respond to the list of questions in the Consultation document.

What the FCA propose in their Consultation, above

Transparency Task Force Interviews Scam Victims

We are interviewing two pension scam victims today, with more to follow, and last week had a fascinating interview with Mark Bishop of the Connaught Action Group. He advocates for almost two thousand sophisticated investors like himself who lost, collectively, more than £100M in 2012 – largely from their pension funds – in an alleged fraud, with the failure to prevent it since blamed in part on inadequate due diligence by Capita Financial Managers.

Mark explained how it worked: “The official position was that money was raised from consumers to be used to provide bridging loans to people that were buying residential property.  In fact it was used to provide development finance … often to connected parties … and as a result of that a lot of money was dissipated. The language used was about low risk and guarantees and so on, in fact a lot of very high risk projects were funded … Overall, was the money used for the purposes for which it was subscribed? I would say without a doubt it wasn’t.”

At least one member of the Connaught Action Group sadly died without receiving any resolution to his case. Mark explained: “I have been in touch over the years with the majority of the 1900 or so people who invested in this product. I used to receive periodic phonecalls from a gentleman who was suffering from cancer, he subsequently became aware that it was terminal cancer, and he would beg me to get the matter resolved rapidly because he was leaving behind a daughter who had a disabled son, she was a single parent”.

“Unfortunately, perhaps because the Regulator didn’t move as well or as efficiently as it might have done, I was unable to deliver on any undertakings I might have given to him to achieve that. That was quite painful.”

“I’ve dealt with a number of people as well including a whistleblower, whose career was ruined by this case.”

Can the FCA be more like Trigger’s broom?

The Regulator has been heavily criticised by Connaught investors for an apparent lack of vigilance and refusal of Chief Executives to engage with Mark Bishop on the Connaught Fund.  The FCA’s handling of the case is currently under independent review.

“When I first became aware of concerns in late June [2012], I phoned what was then the FSA” Mark told us last week. “I said ‘I’d like to speak to somebody who was involved in this product, I believe that there may be some misconduct’.

“I found the individual, she refused to meet with me, she refused to receive evidence from me, she refused to send herself or a colleague to a meeting of [our] investigative team.”

Mark Bishop came to the view, based on that and subsequent experiences, that the watchdog needs to be reformed like Trigger’s broom in Only Fools and Horses (watch clip): “This old broom has had 70 new heads and 40 new handles …” “Well how the hell can it be the same bloody broom?” …

I asked Mark what he feels needs to be done to protect consumers and investors?

“To me it’s about fixing the organisation rather than what you call it,” he said “this thing could become still the FCA, but actually a fit for purpose regulator. I think to do that you would actually have to change the institutional culture of it very substantially.”

“Currently at the moment it talks about being a principle based regulator, but when principles are breached, very little tends to happen. It’s the lead prosecutor for a number of criminal offences. Very rarely is anybody prosecuted for those.”

“I think really it’s about changing the culture and the people in order to turn it into a much more proactive organisation that really has at its heart, in reality not just in rhetoric, the need to protect consumers.”

Mark’s concerns – particularly about the FCA’s refusal to interview complainants or witnesses – may cast the above Consultation in a somewhat more urgent light.

Roger Lloyd-Pack as Trigger in Only Fools and Horses

Press Timeline of relevant articles:

04 Aug 2020Have your say: Will the WPC’s inquiry into the impact of pension freedoms be too overshadowed by Covid-19 impacts? by Professional Pensions

03 Aug 2020 – ‘“I’m 39, have lost my job and am in debt – can I unlock my £18k pension?” … DON’T do it!’‘ by Steve Webb for This is Money

01 Aug 2020‘I lost £2.3m after I was conned into transferring my pension’ by Jessica Beard for the Telegraph

31 Jul 2020 ‘Common sense’ prevails as pension freedom withdrawals fall 17% — But drop is expected to be ‘a short-term blip’ by Robbie Lawther for International Adviser

31 Jul 2020HMRC figures show plunging pension freedom withdrawals by Hope William-Smith for Professional Adviser

28 Jul 2020MPs launch inquiry into pension scams  by Tom Kelly for Daily MailUK Pension Scams Under Scrutiny After 2015 Relaxation in Rules by Reuters & MPs launch wide-ranging pension scams probe by Justin Cash for MoneyMarketing

24 Jul 2020 – US business groups seek steps to stamp out online fraud by Leonie Barrie for Just Style

22 Jul 2020Pension scams increase amid lockdown by Sophie Smith for Pensions Age & Missed Opportunity to Use Victims in Scam Work by Amy Austin for FT Adviser

20 Jul 2020 Campaigners Aim to Create Pension Scam Database by Michael Klimes & Government eyes unauthorised firms by Justin Cash for MoneyMarketing

29 Jun 2020 – MPs Pushed to Launch Pension Scam Inquiry by Amy Austin for FT Adviser & Lawmakers Urged To Open Inquiry Into Pension Scams by Martin Croucher for Law 360

11 May 2020 – FCA urged to build public trust in independent reviews by Rachel Mortimer for FT Adviser

20 Mar 2020 – Connaught review delayed as Covid-19 concerns loom by Rachel Mortimer in FT Adviser

29 Dec 2019‘Lambs to the slaughter – tens of thousands of savers have lost up to £10billion in rogue pensions schemes sanctioned by the government… and now the taxman is threatening VICTIMS with fines’, by Tom Kelly for the Daily Mail

15 Aug 2019Victims hit by Connaught’s collapse blast City watchdog for ‘whitewashing’ independent review by Lucy White for Daily Mail

20 Jun 2019 – FCA orders review of its handling of Connaught collapse by Rachel Mortimer for FT Adviser