FSCS forecasts £900m levy for next year as this year's costs cut

FSCS forecasts £900m levy for next year as this year's costs cut

The Financial Services Compensation Scheme has forecasted a levy of £900m for 2022/23, as advisers will yet again contribute the maximum £240m. 

In an outlook update today (November 11), the FSCS said a number of self-invested personal pension operator failures expected this year that did not happen and were now predicted for the next year. 

As a result the body predicts a £900m levy for next year, including contribution from the retail pool, but has cut its levy for the current year (2021/22) to £717m, lower than the £833m levy announced at the last forecast in May

This was because the £116m contribution from the retail pool is no longer needed. 

The FSCS also confirmed it will not raise a supplementary levy this financial year.

It cautioned the £900m for next year was an indicative figure and could change, especially as about £400m related to compensation for failures that have not yet occurred.

This element of the forecast was based on a number of sources of information and has been calculated on an estimation of when businesses will fail, it explained.  

It said: “Given the variables, these failure predictions cannot be 100 per cent certain. To illustrate, a 20 per cent movement in compensation costs - either up or down - would result in a £90m movement in the levy.”

Caroline Rainbird, chief executive of FSCS,  said: "While the lower levy forecast for this year (2021/22) may be seen as good news, it is important to note that the reduction is mainly due to failures that were expected this year now looking likely to happen next year or beyond. 

“We hope that the industry finds our early 2022/23 levy forecast helpful to plan for the year ahead. We will continue to keep the industry updated on our assumptions and latest forecasts as events play out.”

Next year's levy forecast was based on an assumption that there will be a significant increase in Sipp operator compensation payouts for the Investment Provision class, alongside the ongoing trend of increasing compensation costs for the Life Distribution and Investment Intermediation class.

It said there were still an increasing number of complex claims related to pensions.

The FSCS also assumed there would be no new legal liability established under section 27 that, if implemented, would lead to an increase in FSCS compensation for Sipp operator claims.

Rainbird added: "We appreciate that the levy remains high, but it will take action from all parties to drive fundamental change. We are already seeing progress, for example with the launch of the FCA's Consumer Investment strategy . We will continue to play our role, but again we want to highlight the importance of the wider industry in playing its part. 

“It must proactively call out, and take action against, poor behaviour and do more to identify sources of consumer detriment and practical solutions. It is only through serious action and collaboration that we can combat the issue of the rising levy."