The Financial Conduct Authority (FCA) has announced that it is planning to review the Financial Services Compensation Scheme’s (FSCS) compensation limits for pension claims.

In its feedback statement to its call for input on the framework for protection provided through the FSCS, the FCA said it would be considering whether compensation limits continued to provide an appropriate level of protection for consumers, including pension claims.

Currently, the compensation limit for most claims is £85,000.

The FCA noted that few respondents felt that the limits should be reduced, while there was a fairly even split between respondents who believed limits should be kept the same and those who felt they should increase.

Any proposed changes to the compensation rules are expected to be consulted on during 2023/24, with a view to confirming any changes by the end of that financial year.

The FCA also stated that it would review funding class thresholds to consider whether they remained appropriate and carry out research, in conjunction with the FSCS, to improve its understanding of the impact of FSCS protection on consumer decision making, confidence and behaviour, and on firm behaviour and incentives.

It launched its discussion paper in December 2021 following concerns about the increasing cost of compensation liabilities falling to the FSCS, which the FCA said could create a barrier to firms entering or wishing to stay in the market, potentially affecting the availability of some financial services.

The FCA added that the review aims to ensure that the compensation framework continued to provide an appropriate level of consumer protection, with costs to industry distributed in a “fair and sustainable way” supporting growth and innovation.

The main theme the FCA observed from the feedback it received was the importance of firms improving their conduct so that there were fewer calls on the FSCS from mis-sold products by failed firms.

Feedback also emphasised the need for firms to be more financially resilient to address the underlying causes of high redress liabilities.

“We welcome the constructive engagement and feedback which will inform the next phase of this work,” said FCA executive director of consumers and competition, Sheldon Mills.

“We want to make sure the cost to industry for providing vital protection to consumers through the FSCS is distributed in a fair and sustainable way – that the polluter pays.

“We’re continuing our assertive action to prevent harm from happening in the first place, which should help reduce the levy over time.”


This article first appeared on our sister title, Pensions Age.

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