The Financial Services Compensation Scheme (FSCS) has announced a 2019/20 levy of £532m, £16m more than it forecast in its plan published in January.
This levy includes management expenses of £74.6m.
In 2018/19, the FSCS levy was £468, for the nine-month levy year, July 2018 to March 2019. However, the organisation highlighted that, if the 2018/19 levy had been for a 12-month period, it would have been £574m, £42m higher than the £532m levy announced today.
The FSCS said the main reasons for the relatively small increase between the forecast levy and the final levy are due to an uplift in the number of claims expected against SIPP operators, and an upwards revision to the expected continuing costs in some historic insurances failures.
Following the trend seen in 2018/19, pension claims will continue to be the main driver of compensation costs falling on the FSCS, with a majority of these claims arising from bad advice to transfer retirement savings out of occupational schemes and into SIPPs. Typically, this is with the intention of investing in high-risk, illiquid assets.
Commenting, outgoing FSCS CEO Mark Neale said: “These trends underline the importance of the greater weight which FSCS intends to give in its strategy for the 2020s to both promoting awareness of FSCS protection and to preventing the mis-selling and advice failures which underlie these costs. We shall need the support of our partners in the industry and in the FCA in both respects.
“Promotion and Prevention are the counterparts of our continuing and undiminished commitment to be prepared for failures when they occur and to provide an excellent service to consumers who need our protection as a result of failure."
The rise in many of FSCS's compensation limits from £50,000 to £85,000 will add roughly £20 million to compensation costs in 2019/20. The other changes arising from the Financial Conduct Authority's review of FSCS funding (25 per cent provider contributions and the reorganisation of the funding classes) affect the distribution of compensation costs, but not their size.
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