FSCS blames advisers for high numbers of claims

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FSCS blames advisers for high numbers of claims
Caroline Rainbird, chief executive at the Financial Services Compensation Scheme

The Financial Services Compensation Scheme has cut the amount of levy it expects the industry to pay by almost half - but has said advisers are driving the majority of claims coming into the lifeboat scheme. 

The total bill expected for 2023-24 is £270mn, down from the £478mn estimated in November.

According to the lifeboat scheme’s latest outlook report, published today (May 25), the drop is mainly driven by £97mn of lower compensation costs in 2022-23 which have created additional surpluses. 

But a combination of factors, such as a £20mn increase driven by Sipp advice claims, mean advisers have not seen their costs fall as fast as other sectors.

The amount advice firms are being asked to pay has only fallen by £4mn - to a collective £101mn.

Caroline Rainbird, chief executive of the FSCS, said: “The advice market continues to drive most of the claims we see.

"Now sitting at £213mn, life distribution and investment intermediation is the only class that has seen its compensation forecast increase slightly since November’s outlook. 

“We expect some of the compensation in this class will be paid to former members of the British Steel Pension Scheme, where their advice firm has already failed.

"The FCA’s redress scheme for these former members is now up and running and, by the end of this year, those firms that are still in business should pay any redress they owe.”

The advice market continues to drive most of the claims we see.Caroline Rainbird, chief executive of the FSCS

The compensation costs forecast for the life distribution and investment intermediation class - which advisers sit in - has increased by £3mn since November’s forecast, but the mix of claims expected has changed.

The main changes in the levy forecast include a £21mn reduction relating to the compensation costs for complex pension claims because the number of claims decisions expected in 2023-24 has decreased - though this is offset partly by higher average compensation. 

It also includes a £20mn increase across other products, mainly driven by Sipp advice claims, due to an increase in new claims received in 2022-23. This resulted in an increased volume of claims in progress expected to be completed in 2023-24. 

Overall, the FSCS expects to pay £471mn in compensation next year - the sixth year in a row that it is around £500mn.

The gap between the compensation it expects to pay (£471mn), and the levy it needs to charge (£270mn), is covered by surpluses the FSCS is carrying over from last year.

The FSCS said it did not expect a retail pool levy in 2023-24 as no class is expected to breach its annual levy limit.