The Financial Services Compensation Scheme has reduced its levy for 2022/23 by £275mn to £625mn, saying there have been fewer self-invested personal pension provider failures and complex pension claims.
Back in November, the lifeboat scheme had forecast its levy for the year to be £900mn but had cut its levy for 2021/22 to £717mn from £833mn.
But in an outlook update today (May 26), the FSCS said the 2022/23 levy has been reduced to £625mn for several reasons.
The FSCS said there has been a £128mn decrease against the compensation forecast paid to customers in 2021/22, which led to surpluses being carried forward, as well as a decrease of £162mn in compensation forecasted for 2022/23.
This includes a £65mn reduction in the LDII class for 2022/23, as a result of fewer claims decisions expected for complex pension claims, and a £99mn reduction in the investment provision class, due to less Sipp firms failing.
Advice firms, which fall under the life distribution and investment intermediation class, will contribute £213.1mn to the levy, a drop of £26.9mn from the original forecast of £240mn in November.
The investment provision class also saw a fall of £84.6mn from the £200mn originally forecasted, now standing at £115.4mn.
However, the FSCS said a retail pool levy will not be required in 2022/23 as it no longer expects the LDII class to breach its annual levy limit and require additional funding.
FSCS chief executive Caroline Rainbird, said: “The levy enables FSCS to continue to provide a trusted compensation service that helps build confidence in the industry, particularly during heightened economic volatility.
“While the headline levy number has decreased since our initial forecast in November, the total amount of compensation we expect to pay is greater than last year. Longer-term data suggests that the amount of compensation we pay to customers will continue to increase.”
Rainbird added: “We have faced criticism from some levy payers over the size of their FSCS levy bill in recent years, but these costs are only a symptom – driven by poor consumer outcomes and the compensation we need to pay out as a result.
“FSCS is keen to play a positive and proactive role in shaping the long-term future of the UK’s compensation regime, and we believe our submission to the FCA’s Compensation Framework Review demonstrates our commitment to being a leading and thoughtful voice in this important debate.”
The 2022/23 financial year will be the first year of the Funeral Plans funding class.
From July 2022, the Financial Conduct Authority will take on responsibility for regulating the pre-paid funeral plans sector, with advice in this market falling under the “advising on investments” permission.
As part of its final rules on how it will regulate advice on funeral plans, there will be a ban on commission payments and changes to appointed representative permissions, but advisers have mixed views on what this could mean.
The FSCS said in 2022/23, it is not expecting any firm failures in the newly regulated market or compensation costs in this class.