FSCS to raise levy by £69m due to rising pension transfer claims

The Financial Services Compensation Scheme (FSCS) has confirmed that it will increase its retail pool levy by £69m to cover its running costs.

In a publication released by the FSCS today (28 November), FSCS chief executive, Mark Neale wrote that it would be increasing the levy due to “rising claims volumes of self-invested personal pensions (SIPPs) and pension transfer claims”.

Despite raising a levy on life and pensions advisers in April by £75m, the maximum allowable for a nine month period, the FSCS still expects an end of year deficit of just under £70m.

Neale commented: "This will, I am afraid, necessitate a supplementary levy falling on the retail pool. We shall announce the size of that supplementary levy in January."

The report also revealed that, due to the larger claims volumes that relate to pension adviser defaults, SIPP and other pension transfer related failures has made up 45 per cent of all defaults declared and 83 per cent of resulting claims received in 2018.

The FSCS expects that, by 2019/20, SIPP advice costs will level off.

Neale added: “These short-term financial implications should not, however, obscure the longer-term challenge of tacking the causes of rising pension claims and so stemming future compensation costs.

“We see some common factors underlying these claims. We see consumer vulnerability as people seek to maximise their income in retirement and are persuaded to make unwise investments, usually held within a SIPP, or to trade in valuable rights in defined benefit schemes.”

The increase comes after, in May 2018, FSCS increasing its levy by £71m more than its forecast, due to rising defined benefit transfer claims.

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