Financial Services Compensation Scheme  

Advisers to pay £175m FSCS levy

Advisers to pay £175m FSCS levy

Advisers will be expected to pay £175m towards the Financial Services Compensation Scheme levy for the coming year.

In its most recent plan and budget published today (January 31) the FSCS outlined its initial forecasts for the levy and potential claims volumes for the next year, totalling a predicted £516m on the industry.

The FSCS announced the life distribution, pensions and investment intermediation sector will be expected to pay £240m, as claims against pension advice continue to mount.

Of this, £65m will be shouldered by providers for the first time, leaving advisers with a £175m bill. 

Next year’s £516m figure compares with the £468m levied last year, but the FSCS attributed the higher figure to covering a 12-month period compared with the nine-month levy from July 2018 to March 2019.

The scheme confirmed a levy for 12 months for the 2018/19 period would have been £574m, £58m higher than the proposed levy.

The FSCS said it continued to receive "significant numbers" of claims against independent financial advisers regarding advice given to customers to transfer existing pension arrangements into Sipps.

It said the vast majority of these claims related to advice to invest pension monies into high-risk, non-standard asset classes within a Sipp wrapper.

The FSCS said the uphold rate remained high due the risky nature of these investments and their unsuitable nature for most investors.  

In November the FSCS announced it would raise an additional £69m in supplementary levies for the industry before the end of the 2018/19 year, mainly attributing the rise to the increasing cost of claims against pension advisers.

The Dial-a-Cab credit union failure and Alpha Insurance failure were also claimed to have contributed to additional supplementary levies on firms.

The FSCS also confirmed today its management budget would be £79.6m for the next year, ringfenced for the cost of running the scheme and of paying claims.

This is the scheme’s final budget to be introduced under current chief executive Mark Neale.

Mr Neale said: "This is the first plan and budget carrying forward FSCS's strategy for the 2020s - Protecting the Future - with its four pillars of: prepare, protect, promote and prevent.

"And the first year in which the recent funding review changes, with the new funding classes and provider contribution will take effect, along with an increased limit for some classes."

Mr Neale said he hoped levy payers would welcome the "important continuity" in the increase to the scheme’s management expense budget remaining "broadly flat in real terms", despite a 20 per cent rise forecast for claims next year.

He added: "One of the priorities in the year ahead will be to work with the regulators and with the industry to bring about improvements in the quality of customer information.

"This will help us to increase the speed in which we make payments to our customers.