Pension advisers will almost certainly be levied by the Financial Services Compensation Scheme again this financial year, as bad self-invested personal pension advice continues to dog the sector.
There is also a risk mortgage advisers will be asked to pay more to deal with a higher number of claims.
In its latest Outlook report, published today (1 December), the FSCS revealed it expects claims linked to life and pensions advice will cost much more than it thought earlier in the year.
The actual forecast for this class of claims is now £136m for 2016 to 2017, up from £98m, an increase of 39 per cent.
Minus some £12m brought forward from last year, that leaves life and pension advisers having to make up a shortfall of £29m, most likely via an interim levy in January.
According to Fscs chief executive Mark Neale, the increase is needed to deal with “a more rapid growth” in Sipp advice claims.
“These are claims against advisers, which result from bad advice to move retirement funds out of occupational pension schemes and into Sipps and then to invest in high risk, unregulated investments within the Sipp,” he said.
According to the Fscs, which began to receive a large number of Sipp-related claims in 2014 to 2015, these investments were often high risk and unsuitable for the majority of investors.
Some of the non-standard investments seen with these claims included hotel rooms in Caribbean holiday resorts, storage pods and plantations of oil producing trees in Asia.
Inevitably, because of the risks some of these investments failed, and so the FSCS is receiving claims about the advice to invest in these products.
On several occasions the FCA has warned advice firms advising on the suitability of pension transfers of their obligation to consider both the customer’s existing pension arrangement, and the underlying investments intended to be held within the Sipp.
The number of Sipp-related claims at the FSCS has increased by 59 per cent this year.
The FSCS has received claims against 171 firms in total; four of those firms account for 73 per cent of the compensation paid.
However, 167 firms were responsible for the remaining 27 per cent.
The FSCS stated this suggests the problem of bad advice about the investment of retirement savings is spread across many more than just four firms, meaning it “cannot easily foresee what the eventual volume of claims against these firms will prove to be”.
Elsewhere in its update, the FSCS reported claims against investment advisers have been significantly less than it forecast and so it expects a surplus in this class this year of around £60m.
The compensation scheme plans to apply this as a credit to firms in the class, either against next year’s levy or to offset any supplementary levy costs, or both.
However for home finance intermediation, which includes mortgage advisers, claims numbers in this sector are greater than forecast.
The FSCS is considering whether to raise a supplementary levy this year for this sector.