Advisers on FSCS levy: ‘It is hard not to be cynical’

Advisers on FSCS levy: ‘It is hard not to be cynical’

Advisers have welcomed news that the Financial Services Compensation Scheme levy could fall to £478mn in 2023/24 but remain sceptical that things could change.

In an outlook update today (November 24), the FSCS forecasted a levy of £478mn for 2023/24 which it said was based on expected compensation payments totalling £592mn. 

This included £497mn for firms that have already failed; and £95mn for firms forecast to fail during 2023/24.

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Advice firms, which fall under the life distribution and investment intermediation class, will contribute £105.5mn to the levy, a drop of £107.6mn in 2022/23. 

However, Philip Milton, owner of Philip J Milton & Company, said: “It is hard not to be cynical. 

“The figures should be falling further as the awful and allowed frauds, especially into scams pension schemes, are in the past.”

He explained that while this is welcome news, the figures are still far too high. 

“I won’t hold my breath that this will be the final figure as if the Financial Conduct Authority changes the British Steel redress calculation then the FSCS levy could quite easily rise again,” he said. 

Likewise, Garry Hale, chartered wealth manager and owner of HK Wealth Stirling, said: “Still a totally unfair and unsustainable system where in general the good apples pay for all the wrongdoing by the bad apples.

“A massive expense for advice firms where most will never need to use it.”

The FSCS said it is currently forecasting a lower levy due to an estimated 40 per cent reduction in self-invested personal pension (Sipp) advice claims decisions, with no large advice firm failures expected in 2023/24.

Also the average compensation per claim is decreasing due to macroeconomic inputs.

The lifeboat scheme said this has resulted in a circa £37mn decrease in compensation payments.

Elsewhere, many welcomed the news of the reduction.

Simon Harrington, head of public affairs at Pimfa, said: “The forecasted FSCS levy for the coming year represents significant and welcome downward movement, which will come as a relief to firms in an environment where other costs, which they have no control over, continue to rise.

“We welcome this news and hope that this is representative of future levy forecasts whereby failed firms are wound up in an orderly manner and at no cost to the wider industry.”

Harrington added: “First and foremost however, it is a source of contentment that a significantly lower levy represents significantly lower instances of poor outcomes to consumers.” 

The FSCS also said the levy for 2022/23 will remain unchanged at £625mn. 

The forecast for 2022/23 was first announced last November when the FSCS said it would be £900mn, however, it reduced this by £275mn in May saying there have been fewer Sipp provider failures and complex pension claims.