The Financial Services Compensation Scheme has today (19 March) confirmed a £20m interim levy for life and pensions intermediaries relating to “bad advice” given on self-invested personal pensions.
Firms in this sector will start to receive invoices for their share of the levy from the 23 March and will have 30 days to pay the invoice, or can use existing credit facilities to spread the costs.
Driving the interim levy are the costs and volume of claims relating to bad advice by financial advisers to transfer funds from existing pension schemes into Sipps, according to a notice published by the scheme this morning.
In many cases the Sipp was then invested in non-standard asset classes which have become illiquid, including some with investments in offshore property schemes.
The move despite a move to a 36-month funding cycle last year, which saw basic levies rise but which was designed to prevent advisers being hit with surprise top-up bills through the year. Advisers last year paid £145m, with life and pensions intermediaries paying £33m.
In January the FSCS plan and budget indicated that life and pensions advisers would pay a combined £182m this year, including £57m in the pensions sub-class. The rise was also said to cover rising Sipp complaints.
The new levy relates to the last financial year, as the new annual levy is not confirmed until later this month and once collected is available from July.
Mark Neale, the compensation scheme’s chief executive, said the budget in January warned life and pensions advisers the volume of claims could increase and that consequentially forecast compensation costs could materially increase.
In its notice the FSCS said it had initially started making interim compensation payments to claimants over Sipps where such advice resulted in lost pension growth and charges, however it has now started also compensating claimants for losses in the value of investments.
Mark Neale, the compensation scheme’s chief executive, said: “The costs of Sipps claims are rising, so we have no choice but to issue this levy to the firms that pay for FSCS protection. This interim levy will cover the costs of compensation claims until the next annual levy is available in July 2015.
“I know this will be unwelcome news for firms facing a supplementary levy. We will continue to do all we can to provide more certainty for firms but we cannot entirely eliminate volatility in what is a pay-as-you-go funding arrangement.”