The Financial Services Compensation Scheme has announced that authorised firms will need to pay a £92 million supplementary levy for the current financial year in the Life Distribution & Investment Intermediation class. This levy needs to be paid when the FSCS has higher than expected costs, and the Service mentions three specific reasons why the levy is necessary in the latest Outlook newsletter:

  • The costs involved with compensating customers of a high-profile firm that issued mini-bonds
  • A 45% increase in the number of pension advice claims since May 2020 – the average cost of compensation has also risen by 5% over the same period
  • A general increase in the number of firms failing due to the Covid-19 pandemic

The additional £92 million will include:

  • £29 million from the General Insurance Distribution class retail pool
  • £28 million from the Investment Provision class surplus
  • £10 million from the General Insurance class retail pool
  • £8 million from the Life Distribution & Investment Intermediation class
  • £5 million from the Deposit class retail pool
  • A £5 million contribution from the Deposit class’s existing £7 million surplus
  • £2 million from the Debt Management class retail pool
  • £2 million from the Life Insurance Provision class
  • £2 million from the Home Finance Intermediation class retail pool
  • £1 million Home Finance Provision class retail pool

As can be seen, these costs need to be borne by firms across all sectors, and not just in the affected sector of Life Distribution & Investment Intermediation.

FSCS CEO Caroline Rainbird said:

“There are a number of factors that drive up the levy, including more firms failing. This year, alongside many smaller failures – such as [names of firms] – we have seen more compensation pay-outs to customers resulting from the complex failure of [name of firm]. There has also been an increase in pension advice claims and more costs in relation to the transfer of cash and assets from failed investment firms.


“Unfortunately, this means that at this point in the year, we estimate the Life Distribution & Investment Intermediation (LDII) class requires £92m of additional funding in the form of a supplementary levy. This amount is more than the annual maximum that FSCS can raise from this class. Therefore, FSCS will source £8m from the LDII class and £33m from surpluses across other classes. It will also call for an additional £51m from the other classes, including those in the retail pool. This is a separate pot that all classes are required to contribute to, where they have not reached their annual maximum, and is only used when one class exceeds its annual levy limit. We expect to confirm any additional levies in January 2021 and invoices will be issued shortly afterwards.


“I genuinely understand the difficulty a supplementary levy may cause, especially against a challenging economic backdrop. We only raise this when we absolutely have to, when we estimate that we will not have sufficient funds to meet rising compensation costs or management expenses for the period until the next levy is due.”


The information shown in this article was correct at the time of publication. Articles are not routinely reviewed by Scott Robert and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article.