Payment protection insurance has dominated so many aspects of UK financial services over the past decade and more, yet the new annual Plan and Budget from the Financial Services Compensation Scheme opens by acknowledging that the Service now handles twice as many pension claims as PPI cases.
Many of these pension cases concern transfers out of defined benefit pensions, and the wrapping of risky and illiquid investments into Self-Invested Personal Pensions.
FSCS CEO Caroline Rainbird’s overview to the Plan and Budget document acknowledges a number of changes her organisation has been required to adapt to, including:
- Continuing vulnerability of customers, rising customer expectations
- A higher number of firm failures
- A growing number of complex claims
- An increased choice of financial products
- A faster pace of technological change
- An ever critical need to keep personal data secure
FSCS originally forecast it would process 23,400 claims in the 2019/20 financial year, but now believes that the true figure was 27,200. Its forecast for the number of claims in 2020/21 is also 27,200.
The proposed indicative levy to fund FSCS in the 2020/21 financial year is £635 million. This is an increase of £87 million, or 16%, from the 2019/20 figure of £548 million, and increasing SIPP operator claims are said to be the main driver behind this significant rise. Prior to January 2018 there had been no SIPP operator failures in the UK, but since then there have been as many as nine and predicted costs for this area alone in the next 12 months are £209 million.
The £635 million figure will include levies on firms in the following individual sectors as follows:
- Life Distribution, Pensions and Investment Intermediation – £213 million, a rise of £24 million
- Investment Provision – £200 million, a rise of £61 million
- General Insurance Provision – £118 million, a fall of £47 million
FSCS is reporting an increase in claims due to unsuitable advice for interest-only mortgages. However, the majority of these have been rejected due to insufficient evidence of negligent advice, meaning that there has been no real impact on compensation costs. The 2020/21 forecast is for claim volumes in this area to reduce.
FSCS forecasts that its management expenses in the forthcoming financial year will be £78.2 million. This is £1 million higher than the latest forecast figure for 2019/20 and £3.6 million higher than the original budgeted figure for 2019/20.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article