PensionsAug 22 2014

‘Medium risk’ of FSCS interim levy due to Sipp complaints

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ByDonia O’Loughlin

The Financial Services Compensation Scheme has warned that there is a “medium risk” of an interim levy during 2014/2015 in the life and pensions category, due to the risk of increased compensation claims from complaints regarding self-invested personal pensions.

This is the only category with a “medium risk”, the FSCS’s August outlook revealed.

Mark Neale, FSCS chief executive, said: “We have provided an early indication of the prospects for additional levies in 2014/15. At the moment an interim levy is unlikely.

“However, in the life and pensions intermediation sector there is a risk because of Sipp provider claims.

“We are monitoring this closely and will keep the industry informed of any developments. As always, I should remind you that these are only indications; the picture can change as we move through the year.”

He added that he “very much supports the action the FCA is taking to ensure the protection of consumers”.

According to the FSCS, its new approach to funding “aims to give the industry greater certainty and to reduce the likelihood of interim levies”.

The 2014/15 levy is the first to be calculated under the new 36-month funding approach. The aim of this new approach is to reduce the volatility of annual levies and the likelihood of interim levies.

Last month, the FSCS declared three financial advisers in default over self-invested personal pension transfers, in addition to TailorMade Independent Ltd.

The FSCS revealed that 1 Stop Financial Services, Kynaston-Carnoustie Financial Consultancy Limited and Crawford Scott Ltd have all now been declared in default as a result of investigations into Sipp transfer claims.

The FSCS’s 184-page annual report, published in July, revealed the scheme is dealing with “increasing volumes of claims relating to advice given to consumers to switch from conventional pensions to a Sipp”.

The FSCS’s comments follow the Financial Conduct Authority’s warning in April that advice to transfer assets into esoteric investments wrapped within Sipps is to come under a greater level of scrutiny. The FCA stopped short of the ban it placed on recommending unregulated investments to most retail clients.

However, the regulator may be changing its view after finding in its third thematic Sipp review, launched in October, that a “significant number” of Sipp operators were still failing to manage these risks and ensure consumers are protected appropriately, despite its recent guidance.

The failings put UK consumers’ pension savings at “considerable risk”, particularly from scams and pension fraud.