Claims paid out by the Financial Services Compensation Scheme have risen to £375m, according to its annual report, with an increasing amount of payouts related to self-invested personal pensions.
More firm failures in 2016/17, particularly in general insurance, life and pensions and home finance intermediation, lead to the higher claims payouts.
The compensation paid to investors holding their pensions in Sipps went up by 35 per cent to £105m.
The FSCS’s annual report said of the Sipp-related claims increase: “These investments are often high risk and unsuitable for most investors. Their riskiness means some investments inevitably fail and become illiquid.
“This trend began two years ago and has continued this year, with claims against an increasing number of failed life and pensions advisers.”
The FSCS added that there had been a “notable increase” in compensation claims against mortgage brokers following the Emptage case.
This case centred around a woman who was advised to borrow money secured against her residential property in order to purchase an off-plan property in Spain, with a Court of Appeal ruling concluding that redress payable for losses caused by the regulated mortgage advice included losses from unregulated property investment.
The failure of a single firm – Fuel Investments Limited – led to compensation costs in the mortgage advice class being £11m greater than forecast.
The FSCS is paid for by the industry, in the form of yearly levies.
In total the FSCS levied £738m from the financial services sector last year, with most of this - £361m – being paid by banks and building societies including a £337m major banking failure levy to recover the interest costs of the FSCS's loan from HM Treasury for the Bradford & Bingley resolution.
The life and pensions intermediation class paid £126m while the investment intermediation class paid £44m.
Home finance intermediation class members - mortgage advisers - paid £21m in total during 2016/17.
This compared to a total £1bn in levies received for the previous year, with £811m coming from deposit takers, £119m by life and pension intermediaries, £115m by investment intermediaries and £5m by mortgage brokers.
The FSCS’s management expenses increased by £3.4m to £69.4m which has been attributed to core costs such as legal and professional, bank charges and IT infrastructure.
The high number of claims during the year meant handling costs went up by £4.1m, which were absorbed into the FSCS’s existing budget through “savings and efficiencies”.
The £11.8bn sale of Bradford & Bingley loans in March generated £11bn which was used to reduce FSCS’s loan from HM Treasury.
damian.fantato@ft.com
