Pension providers and advisers will be expected to pay £240m levy to the Financial Services Compensation Scheme (FSCS) over 2019/20, an increase of £43m on the previous nine months.
Publishing its Plan and Budget 2019 today, 31 January, the FSCS said the increased levy was down the “significant number” of complaints regarding advice to customers regarding transfers, a type of claim it expects to see increase.
Providers will be required to pay £65m towards the levy, leaving advisers footing the bill for the remaining £175m.
The FSCS said the total levy for the next 12 months will total approximately £516m, an increase on the £468m levied across the industry for the previous nine months.
Explaining the increase, the FSCS wrote: “The vast majority of these claims relate to advice to invest pension monies into high-risk, non-standard asset classes within a SIPP wrapper. Because of the risky nature of these investments, many of the funds became illiquid and often insolvent. These investments are unsuitable for most investors and therefore the uphold rate is high.
“The continuing changes in this environment make forecasting future trends challenging.”
The lifeboat added that the proportion of claims paid in relation to unsuitable advice to transfer out, such as in the British Steel Pension Scheme, also had an impact.
Commenting on the increased levy, Aegon pensions director, Steve Cameron, said: “The FSCS expects to see further increases in claims connected with advice on unregulated, high risk investments within SIPPs.
“This means the adviser profession, the vast majority of whom have never made such recommendations, are paying for the unsuitable advice of the very few, which doesn’t seem fair.”
Cameron welcomed the introduction of providers paying a 25 per cent share of intermediary levies.
The Personal Investment Management and Financial Advice Association (PIMFA) director of regulation, Ian Cornwall, called the increase “unacceptable” and questioned the Financial Conduct Authority’s (FCA) supervisory approach.
“FCA’s supervisory approach must be more proactive in quickly taking action to address the root causes of the claims that result in unsustainable FSCS levy increases.
“The FSCS levy is a major cost burden on all firms large and small and is considered by firms to be a cost of regulation - the current level of levies is unacceptable and not sustainable. Urgent work needs to be done to prevent failure of firms that leads to calls on the FSCS.”
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