FSCS to raise £46m interim levy as pension claims rise
The Financial Services Compensation Scheme has warned advisers they will have to pay their share of a £46m interim levy this year in light of rising pension advice claims.
In a levy update published today (December 17) the life-boat fund confirmed there was a high risk the life distribution, pensions and investment intermediation funding class would need to pay an increased levy in this financial year.
The scheme pointed to "more complex and more expensive" pension claims and a number of high profile investment failures such as SVS Securities and Reyker Capital as cause for the additional costs.
The additional £46m includes a contribution from providers in the sector and reflects a jump of £44m in the compensation FSCS expects to pay out this year.
The scheme said: "The main area of claims, £162m of total costs of £237m, is in relation to pension advice.
"We have experienced more complex, and more expensive claims in this area and this has increased the cost by £20m.
"We also expect to make 1,200 (58 per cent) more decisions in relation to general investment activities against a variety of firms.
"As we are likely to have to deal with claims from the recent failures of SVS Securities and Reyker Capital, there is an allowance for this increase and we will update in the new year."
Advisers have already seen a marked increase in their annual regulatory bills this year, which has largely been driven by growing FSCS costs.
Despite fees from the FCA dropping slightly this year, advisers have pointed to the FSCS levy as cause for what in some cases has been a 30 per cent larger bill.
Caroline Rainbird, who joined the FSCS as its chief executive earlier this year, warned the scheme had seen a "steady increase" in investment sector and pension claims in the first half of this year.
She said: "In particular for pensions related advice, which will mean additional costs for firms in the life distribution, pensions and investment intermediation class, and the investment provision class.
"There may also be a call for additional funds from the investment provision class to meet self-invested personal pensions related claims, following a series of operator failures, however this is less certain."
Final decisions on the levy amount for each class ares expected in the new year.
The FSCS boss added: "I am deeply conscious that without levy payers' funding and support we cannot expect to meet our goals.
"Since joining FSCS in May, I have spent time meeting firms and trade bodies to hear views on the operation of FSCS and our funding.
"I am pleased to hear that the industry acknowledges the vital role FSCS plays in helping to protect the customer and support market confidence and financial stability and accepts its role as our funder.
"But I recognise the concerns about the rising trends in compensation costs. It is key for us to work together to reduce compensation – avoiding consumer detriment and costs to the industry."
Ms Rainbird said the lifeboat fund was still not able to report anything definitive on the controversial issue of London Capital & Finance, which collapsed in January having raised in excess of £237m from more than 11,500 investors.
The FSCS continued to work with the Financial Conduct Authority on the matter but was unable to say what impact the scandal might have on levy numbers, Ms Rainbird said.
rachel.mortimer@ft.com
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