Financial Services Compensation Scheme  

FSCS calls for review to hike £85k limit for pension claims

In December, the FCA published a discussion paper for a compensation framework review, outlining a number of ideas, including one which said firms should pay a premium on levies for carrying out higher risk activities or selling risky products. Another suggested high-net-worth or sophisticated investors could be barred from claiming compensation through the regulatory channels.

At the time, the FSCS welcomed the regulator’s compensation framework review and said “something must change”. It urged that it would like to see a broad and open discussion around potential compensation models for the future, as well as suggestions for solving the problems of today.

The data and insights by the FSCS published today includes its submission to the CFR. 

FSCS head of policy Jay Sheth said: “Stabilising the levy and moving into a space where it is sustainably decreasing is a tough ask. We could resort to blunt instruments such as lowering compensation limits or removing certain groups of customers from protection, but that would just be masking the real issues.

"Our data doesn’t tell us that measures like these will make any significant dent in the costs today, especially as we know we have harm that has already happened waiting to come through as claims. What we need is reform."

Sheth said this is already beginning, with the future regulatory framework review, the compensation framework review, online safety bill, where progress is being made.

"Focusing on these opportunities and making sure every voice is heard during the consultations and debate is key," he added.

Impact of customers' losses

A key difference between pension claims and other circumstances where the FSCS can pay compensation to customers is the level of "uncompensated loss", where the money it can return to customers is less than the total amount they lost due to the FSCS’s compensation limits. 

For pensions advice claims, including pension transfers, the FSCS said the rise in uncompensated loss has been far steeper, and the average uncompensated loss per customer far greater than the average across all claim types. 

Source: FSCS - The balancing act of compensation

The total number of claims where the customer’s loss was over the relevant limit was almost 3,600 in the 2021/22 financial year.

This number has risen steadily over the past six years, and in that period has resulted in just short of £1bn loss not being paid back to customers as compensation.

Source: FSCS - The balancing act of compensation

FSCS head of resolution Simon Wilson said: “The differences between the types of failure FSCS deals with are stark when it comes to how well we feel we are putting people back on track, and a lot of that is down to our compensation limits. In recent years, most of the deposit failures we’ve seen have been credit unions.