The Financial Services Compensation Scheme (FSCS) has published its Plan and Budget for the 2020/21 financial year. The Scheme predicts that the amount authorised firms will need to pay, known as the indicative levy, will be £635 million. This represents a rise of around 16% compared to the initially proposed levy of £548 million in 2019/20.
An update to the indicative levy amount for the next financial year will be issued in April.
The principal reason for this increase is said to be the higher number of claims relating to Self-Invested Personal Pensions (SIPPs), with pension cases now comprising 43% of FSCS claims, double the number that relate to payment protection insurance. The Plan and Budget notes that nine SIPP operator firms have failed since January 2018, and that there had been no failures in the SIPP sector prior to this.
The £635 million figure includes £213 million from Life Distribution, Pensions and Investment Intermediation firms, £200 from the Investment Provision class and £118 million from General Insurance Provision firms. The proposed figure of £213 million is around 13% higher than the final levy in the Life Distribution, Pensions and Investment Intermediation class in 2019/20, which was £189 million.
The FSCS has also announced a supplementary levy for 2019/20, where £50 million will need to be paid by firms in the Life Distribution, Pensions and Investment Intermediation class. However, FSCS will also provide a refund of £30 million to firms in the Deposits class as here costs have been lower than expected.
FSCS chief executive Caroline Rainbird said:
“FSCS expects to face a number of challenges in the coming year including continuing vulnerability of customers, a higher number of firm failures and a growing number of complex claims.”
The Personal Investment Management & Financial Advice Association (PIMFA), a trade association for financial advisers and wealth management, has described the levy increase as “totally unsustainable”.
PIMFA CEO Liz Field said:
“The year on year excessive level of compensation cost is such that we call upon the FCA Board to carefully consider whether FCA’s existing supervisory regime is fit for purpose, and for HMT to fundamentally review the purpose of the levy system and its impact on good firms. The system is not working and fundamentally impacts on firm’s ability to invest in their businesses and enhance services to clients.”
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