FSCS cuts £1bn levy demand to £833m

Jenna Brown
clock • 3 min read
FSCS cuts £1bn levy demand to £833m

The Financial Services Compensation Scheme (FSCS) has reduced its levy demand for 2021/22 by just over £200m to £833m.

It had originally been forecast at £1.04bn for the financial year in the organisation's plan and budget document released in January, a figure described by PIMFA as a "national scandal".

The FSCS said it cut its levy demand for two main reasons - firstly that many firms set to fold in the coming year would likely limp on due to government support schemes. It said: "Some firms that looked likely to fail this year could now fail in the 2022/23 financial year and beyond."

Secondly, the FSCS said it saw lower claims volumes relating to recent insurance failures than had been expected during 2020/21.

It added: "There are also a number of self-invested personal pension (SIPP) operator claims that we now expect to be paid in 2021/22, rather than in 2020/21. These factors have led to a surplus for the 2020/21 financial year, which has been used to offset the previously forecasted £1.04bn levy."

Sadly for advisers, the Life Distribution and & Investment Intermediation pool has still exceeded its limit, which means they will still pay the maximum levy for that funding class for the second year in a row, despite the overall levy demand dropping down to £833m. 

FSCS chief executive Caroline Rainbird said: "While it may be welcome news to see a lower forecast than announced in January, we do not call this a successful outcome or 'good news'.

"There is still a chance that these re-forecasted failures could occur in the years ahead. We also appreciate the levy, even at this updated forecast of £833m, is too high and the cost could put pressure on firms' finances."

Despite the cut, the 2021/22 levy works out at an increase of £133m compared to 2020/21 when it stood at £700m across financial services.

It said the increase is due to a number of factors, including higher value pension advice claims in the Life Distribution and Investment Intermediation class, pay-outs for the General Insurance Provision class and failures of SIPP operators in the Investment Provision class, in line with trends FSCS has seen over recent years.

The FSCS added that the £833m levy was expected to include a £116m demand for the retail pool as a number of classes are likely to see more claims than they can be invoiced for in a year

It explained this was a separate pot that other FCA classes are required to contribute to if they have not reached their maximum levy limit, and another class has exceeded its own limit.

However, it added: "Given the ongoing economic uncertainty, and in order not to raise a higher levy than it needs to, FSCS will continue to monitor likely failures and defer invoicing the £116m retail pool until a later point in the year, when the required amount is more certain.

"We will update on the likely invoicing date for the retail pool as soon as we can, and will give the industry 30 days' notice before invoices will be issued."

Rainbird added: "We are doing all that we can to help reduce the levy and are delaying calling for the retail pool to avoid invoicing for more than we need and to help spread the costs.

"Ultimately, to deliver a sustainable reduction in the levy over time, all stakeholders, including the industry, need to work together to tackle the root causes of the problem, to help drive better outcomes for consumers and a reduction in the levy."