The Financial Services Compensation Scheme plans to up the amount it levies from the industry by £16m, including raising more money from pension advisers for the fourth year in a row as self-invested personal pension claims continue to mount.
For the nine months to March 2019, the FSCS is planning to levy the financial services sector £336m to pay compensation claims to customers who have lost out to bust companies.
This is up from £320m for 12-month period until July 2018.
From next year the FSCS will align its its levy year - which currently runs from July to June - to the financial year starting in April, meaning its next levy year will only be nine months long.
This means that while some funding classes are seeing their levies go down on an annual basis, on a pro-rata basis they have actually increased.
For example, the life and pensions intermediation class will be levied £87m, a £13m decrease on the current year but, on a pro-rata basis this is £12m more.
In fact, in the FSCS's plan and budget it said the maximum would be levied against life and pension advisers for the fourth consecutive year and the retail pool - which allows for cross-subsidisation of levies when the limit for a single class is reached - would be triggered for the third year in a row.
The compensation body said: "The FSCS continues to receive significant numbers of claims against independent financial advisers regarding advice given to customers to transfer existing pension arrangements into Sipps.
"The vast majority of these claims relate to advice to invest pension monies into high-risk, non-standard asset classes within a Sipp wrapper. Owing to the risky nature of these investments, many of the funds became illiquid and often insolvent. These investments are unsuitable for the majority of investors.
"The FSCS expects to continue to see increased numbers of this type of claim along with other types of life and pension related claims in 2018/19. This will lead to an increase in compensation costs because of the typically high value of these claims."
The investment intermediation class will see a cut in its levy in both real terms and on pro-rata terms, falling from £88m to £46m while investment providers will see their levy increase by £24m to £34m.
Home finance intermediaries - generally mortgage advisers - will see their levy increase by £3m to £17m, despite the shorter year.
Addressing this class, the FSCS said: "In recent years the FSCS has seen an increase in claims volumes and compensation costs for home finance claims. One firm in particular, Fuel Investments Limited, accounts for a large proportion of our forecast costs.
"Claims against Fuel typically relate to advice to remortgage residential properties in order to raise funds to invest in high-risk property schemes. Customers are paid compensation for losses directly caused by the regulated mortgage advice which can include significant losses arising from the property investments.
"These meant a marked increase in our uphold rate and compensation paid over the past few years, which are also reflected in our levy forecast."
Yesterday (18 January) the Financial Conduct Authority and the Prudential Regulation Authority announced that they would set a limit of £72.7m that the FSCS could levy for its running costs - plus a £5m unlevied contingency reserve.
This was an increase of £3.2m, driven mainly by "a number of one-off costs" and a proposed increase in the capacity of the FSCS's credit facility.
This morning (19 January) the FSCS said it would only make use of this limit, which was an increase on the current year, when it levied £69.2m.
Mark Neale, the chief executive of the FSCS, said: "Our customer service is much enhanced, thanks to our investments in technology and process. We improved our value for money and the transparency of our reporting and there has been significant innovation in how we deliver our service.
"Awareness of FSCS protection is now at record levels and the legacy of the 2008 banking failures is now mostly resolved.
"FSCS is in a position of greater preparedness for future failures thanks to planning and testing work and we have become a more professional and resilient organisation. We are, in short, in good shape to face the challenges ahead."
damian.fantato@ft.com
