The UK’s Financial Services Compensation Scheme said today that it plans to increase the amount it levies on UK financial services businesses by 5%, even though the period of time covered will only be nine months rather than 12, citing “the higher cost of enhancing FSCS resilience”.
In its 28-page Plan and Budget 2028/19, the FSCS noted that compensating people who had lost their savings through self-invested personal pensions, or SIPPs, was a particular problem.
It was the fourth year in a row that the FSCS has announced an increase in its annual levy on the industry. The FSCS was set up in 2000, and covers deposits, insurance policies and insurance brokering, investments and mortgages.
In its annual Plan and Budget, the FSCS said it would bill the financial services sector £336m to cover its compensation scheme payouts during the nine months to 31 March 2019, up from £320m for 12-month period ending in July 2018.
According to the FSCS, the life and pensions intermediation class will be charged £87m during the nine-month period ending on 31 March 2019, a £13m decrease on the current year’s total but, on a pro-rata basis, £12m more.
The growing pressures on the compensation scheme to fund claims from UK victims of failed investments and pension schemes are seen as having been fueled over the past two years in particular by the so-called Pension Freedoms legislation that came into force in 2015. As a result of that legislation, financial services firms in the UK and elsewhere have been targeting British pension-scheme members with the aim of convincing them to access and then reinvest their pensions.
As reported here in November, as many as 10.9 million people – or roughly one in six people in the UK – are now being cold-called about their pension each year, according to pensions minister Guy Opperman.
In its 28-page Plan and Budget 2028/19, the FSCS says it “continues to receive significant numbers of claims against independent financial advisers regarding advice given to customers to transfer existing pension arrangements into SIPPs”.
It adds: “The vast majority of these claims relate to advice to invest pension monies into high-risk, non-standard asset classes within a SIPP wrapper. Owing to the risky nature of these investments, many of the funds became illiquid and often insolvent. These investments are unsuitable for the majority of investors.
“[The] FSCS expects to continue to see increased numbers of this type of claim, along with other types of life and pension related claims in 2018/19. This will lead to an increase in compensation costs because of the typically high value of these claims.
“That said, uncertainty remains as to the number and value of claims that [the] FSCS will receive in the coming period.”
To read and download the FSCS Plan and Budget, click here.