The Financial Services Compensation Scheme (FSCS) is to raise an additional £23.9m from financial advisers and the wider industry, following higher than expected claims about self-invested personal pensions.
The scheme said it in its latest Outlook publication it had expected the costs to be higher than the amount levied on advisers for this year but decided to limit the levy with a view to raising any extra amounts needed later in the year.
The annual levy limit in the life and pensions intermediary class is £100m, which the FSCS raised in April.
At the time it already expected the compensation costs to be closer to £146m.
It said it had levied to the amount of the limit rather than triggering a levy for the entire pool of financial sector firms which deal with retail customers - which it has now done - because of the uncertainty around the number of claims and their value.
The FSCS has now stated: “The supplementary levy arises from continuing growth in the volume of Sipp-related claims falling on life and pension advisers.
“Our forecast in April was that these costs would amount to around £146m, but, because of the uncertainty attached to this forecast, we elected to raise a levy of only £100m – the maximum for this sector.
“We now calculate that, on current volumes and average costs, we shall need to raise only around an additional £24m in 2017/18.
“This cost will trigger a cross-subsidy and fall on the retail pool.”
Sipp claims have been a major factor in raising the cost of the FSCS on advisers in recent years.
The scheme's latest annual report out last July showed compensation paid to investors holding their pensions in Sipps went up 35 per cent to £105m in the year.
The issue often lies with the investments held in the vehicles, which have historically been found to have been high risk and unsuitable for most investors.
However, since April, the overall expected compensation costs for the year reduced by about £15m, the FSCS stated.
The scheme also had a higher than expected opening balance in the class in June, mainly because of a reduction in average compensation for Sipp-related claims, which make up the majority of costs in this class.
In addition, the six-month average cost of each Sipp-related claim reduced from £30,000 in January 2017 to £23,000 today, it said.
The reduction in average cost was partially offset by a 4 per cent increase in the number of claims processed in the class, however, as well as an increase in the overall uphold rate from 61 per cent to 66 per cent, the scheme added.
“We are currently expecting a closing deficit in this class of £24m," the FSCS stated.
“We will raise a supplementary levy. As we have raised £100m from this class, the supplementary levy will be raised against the retail pool in the same manner as last year.”