Industry welcomes levy drop but questions FSCS forecast

Industry welcomes levy drop but questions FSCS forecast

Industry members have welcomed the drop in the Financial Services Compensation Scheme levy but raised concerns about how forecasting could be "so wrong".

In an update today (May 26), the FSCS said its levy for 2022/23 fell by £275mn to £625mn, as a result of fewer self-invested personal pension provider failures and less complex pension claims.

Back in November, the lifeboat scheme had forecast its levy for the year to be £900mn.

But Panacea Adviser chief executive officer Derek Bradley said the fall was "worrying" as he questioned how the forecasting was "so wrong".

Bradley said: "Mostly it is wrong as they do not have enough money, now they have too much and they are carrying forward. Interesting that they carry forward rather than refund to firms?”

Red Circle Financial Planning chartered financial planner Darren Cooke remained sceptical as he hoped this would see his bill reduced this year. 

“Odd what happens when they don't have to pay out for the failure to deal with scams like LC&F, Blackmore, Bassett and Gold etc,” he said.

“When the next one goes pop and they decide we have to pay compensation... I expect it to go back up again or to get a supplementary levy notice.”

Meanwhile, Personal Finance Society director of policy and public affairs Matthew Connell, said the fall was welcome.

“Many well-run firms have seen steep rises in levy in recent years, and are understandably angry at having to pay for the cost of poor practice over which they have no control,” he said.

Yet he too raised concerns that the real problem with the FSCS levy and professional indemnity insurance is the volatility of costs and, in the case of PII, availability. 

“Firms have no way of predicting the size of the costs, and so they always have to plan for the worst,” he said. “That reduces their ability to grow and to close the advice gap.

“A simple, and very small, percentage charge on assets under management in the UK would deliver the same level of consumer protection that we have today, without the volatility that is currently holding the market back.”

The FCA's role

In March, adviser trade body Pimfa said the FSCS levy will continue to rise if the FCA's proposed reforms of the levy are introduced.

In December, as reported by FTAdviser, the FCA published a discussion paper exploring how the FSCS levy could be reduced, recognising that its continued increase was damaging for financial advisers and their clients.

Aegon pensions director Steven Cameron, said: “The FCA has said its new consumer duty should improve conduct and culture and the hope is this will drive down the likelihood of customers suffering detriment and hence the need for compensation.