FSCS ups final levy for 2019/20 by £16m to £532m

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FSCS ups final levy for 2019/20 by £16m to £532m

The FSCS is to levy firms £532m this year - £16m more than it forecast in its 2019/20 Plan and Budget in January - although the levy required for life, pensions and investment advice has been reduced by £29m to £211m.

Announcing its final levy for 2019/20, the Financial Services Compensation Scheme (FSCS) said the main reasons for the increase between the figure forecast in January and the final one were 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".

In a statement, the lifeboat fund added: "As in 2018/19, the main driver of the compensation costs falling on the FSCS this year will continue to be pension claims.

The bulk of these claims will continue to arise from bad advice to transfer retirement savings out of occupational schemes and into SIPPs - usually with a view to investment in risky and illiquid assets"

"The bulk of these claims will continue to arise from bad advice to transfer retirement savings out of occupational schemes and into SIPPs - usually with a view to investment in risky and illiquid assets."

The FSCS went on to say, however, that the levy required for life, pensions and investment advice had been reduced by £29m to £211m because of a reduction in the expected costs of compensation. Of this, £58m is funded by provider contributions, leaving £153m to be paid by advisers themselves.

"Our latest experience is that the pension claim volumes are flattening out," it said.

"We have therefore reduced the pensions advice claims forecast from 10,600 to 8,200. In addition, we have reassessed the allocation of claims against Beaufort Securities based on negligent advice to invest in unsuitable stocks, following the review of some cases.

"We now think around two-thirds of these claims will most likely arise from discretionary fund management activity and so be ‘investment provision' claims.

"This reduces the cost on life, pension and investment advisers by £8m, with a commensurate transfer to investment providers."

According to the FSCS, the final levy includes management expenses of £74.6m. In 2018/19, the FSCS levy was £468m for the nine-month levy year, which ran from July 2018 to March 2019.

Had the 2018/19 levy been for a 12-month period, it said, it would have been £574m - £42m up on the £532m levy announced.

The FSCS also expected the rise in many of its compensation limits from £50,000 to £85,000 to add roughly £20m to compensation costs in 2019/20.

"The other changes arising from the FCA's review of the FSCS's funding - 25% provider contributions and the reorganisation of the funding classes - affect the distribution of compensation costs, but not their size."

Outgoing FSCS CEO Mark Neale said: "These trends underline the importance of the greater weight that the 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 that underlie these costs. We shall need the support of our partners in the industry and in the FCA in both respects."

Neale added: "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."

 

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