The Financial Services Compensation Scheme (FSCS) has announced its levy for 2019/20, and will levy firms £532m this year, £16m more than it forecast in its Plan and Budget 2019/20 in January.
This includes management expenses of £74.6m. In 2018/19 the FSCS levy was £468m for the nine-month levy year (from July 2018 to March 2019). Had the 2018/19 levy been for a 12-month period, it would have been £574m – £42m higher that the £532m levy announced today.
The main reasons for the relatively small increase (£16m) between the forecast levy and the final levy are an uplift in the number of claims expected against SIPP operators and an upwards revision of the expected continuing costs in some historic insurances failures.
As in 2018/19, the main driver of the compensation costs falling on FSCS this year will continue to be pension claims. The bulk of these claims will continue to arise from bad advice to transfer retirement savings out of occupational schemes and into SIPPs – usually with a view to investment in risky and illiquid assets.
Mark Neale, outgoing FSCS CEO, said:
“These trends underline the importance of the greater weight which FSCS intends to give in its strategy for the 2020s to both promoting awareness of FSCS protection and to preventing the mis-selling and advice failures which underlie these costs. We shall need the support of our partners in the industry and in the FCA in both respects.”
The rise in many of FSCS’s compensation limits from £50,000 to £85,000 will add roughly £20 million to compensation costs in 2019/20. The other changes arising from the FCA’s review of FSCS’s funding (25% provider contributions and the reorganisation of the funding classes) affect the distribution of compensation costs, but not their size.