Board of the Pension Protection Fund v Dalriada Trustees Ltd

A company may be an employer for fraud compensation purposes even where it has no employees under contracts of service, provided it has one or more directors eligible for membership of the occupational pension scheme. This applies whether or not the directors are remunerated.

An employer’s pension liabilities under a scheme include legal liabilities arising under scheme rules, statute, tort or equity, provided they contribute directly or indirectly to funding members’ benefits. The phrase may apply even where the liability is nil.

Costs of investigating fraud, making recoveries, dealing with irregular administration and meeting related tax liabilities may be attributable to the prescribed offence. Compensation is available only for reductions occurring while the scheme was an occupational pension scheme, although recoveries may occur later.

The Board sought declarations concerning the operation of the Fraud Compensation Fund under Part 2 of the Pensions Act 2004. Dalriada, an independent trustee of the Turnberry Wealth Management Pension Trust, opposed restrictive interpretations which would exclude schemes with only office-holders, liabilities arising outside scheme rules, consequential losses and schemes which had previously been shams.

The court considered six questions concerning: the meaning of employer; employer’s pension liabilities and scheme failure notices; categories of compensable loss; whether a sham scheme could later become genuine; and the timing of losses and recoveries. The Secretary of State for Work and Pensions participated as an interested party.

1. Declaratory relief. The questions were sufficiently connected to live and important disputes affecting the administration of the Fraud Compensation Fund. The court could properly provide guidance despite the possibility that some aspects were academic.
2. Employer. A company is an employer for section 182 purposes if it has one or more directors eligible for scheme membership, whether or not they receive remuneration and even if it has no employees under contracts of employment. The statutory concepts of employer and employment should be construed consistently across the pensions legislation. This conclusion was consistent with Pi Consulting Trustee Services Ltd v The Pensions Regulator [2013] Pens LR 433.
3. Employer’s pension liabilities. The phrase is not confined to liabilities arising under scheme rules. It includes legal liabilities under statute, tort or equity where they require payment which contributes, directly or indirectly, to funding members’ benefits. Liabilities for trustees’ fees and expenses imposed under sections 8 and 25 of the Pensions Act 1995 are included. A scheme failure notice may be issued even where there are no such liabilities; the phrase is qualified by the words “if any”.
4. Attribution of loss. The statutory question is not resolved by a bare “but for” test or by requiring the prescribed offence to be the direct and predominant cause. The Board must assess whether the reduction can properly, reasonably and sensibly be ascribed to the offence in its legislative context. Investigation and recovery costs, additional administration costs caused by irregular administration, scheme sanction charges and reasonable costs of challenging those charges are capable of being attributable to the offence. Whether they are attributable in a particular case remains for the Board.
5. Sham schemes. A sham occupational pension scheme cannot receive a valid statutory transfer merely because a member or transferring trustee believes, or is reckless as to whether, it is genuine. A transfer to a sham scheme is likely to be unauthorised and ineffective in equity. An independent trustee appointed by the court may, however, terminate the sham. Whether the resulting arrangement satisfies the statutory definition of an occupational pension scheme depends on the terms and effect of the appointment and governing documents. General declarations concerning other appointments were inappropriate.
6. Timing. Compensation is unavailable for a reduction occurring when the scheme was not an occupational pension scheme. A recovery of value may qualify even if received after the scheme ceased to have that status. The questions were answered accordingly, with Question 3 not arising.

First-instance proceedings in the High Court (Chancery Division). No appellate history was stated in the judgment.