FSCS raises £114m supplementary levy for GI, pensions and mortgage firms

The Financial Services Compensation Scheme will levy financial services firms a total of £378m in 2017/18, with three supplementary levies on life and pensions advisers, general insurers and mortgage advisers to meet "unforeseen compensation costs".

Related topics:  Finance News
Rozi Jones
16th January 2017
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"We recognise the costs impact on firms, particularly in the light of the supplementary levies announced today, of which we seek to give as much advance warning as possible."

The supplementary levies are for general insurance provision (£63m), life and pensions intermediation (£36m), and home finance intermediation (£15m).

However investment advisers will see a refund of £50m due to claim volumes being lower than FSCS's forecast.

The additional £36m on life and pension advisers is to fund compensation for high numbers of SIPP-related claims and supplements the annual levy for 2016/17 of £90m.

This will exceed the £100m annual funding limit for that sector and will trigger a cross-subsidy from other parts of the industry through the retail pool to fund the remaining £26m.

The FSCS says its supplementary levy against home finance intermediaries is because of the risk that, if carried over into 2017/18, the £15m shortfall might result in the £40m annual limit for these firms being exceeded. This will also impose costs on other industry sectors through a cross subsidy.

The FSCS says the deficit of £15m on its home finance intermediation account is "due largely to the failure of one particular firm that gave bad advice to engage in risky property investments alongside mortgage advice".

In total, the FSCS expects to levy the industry £378m, down from £401m in 2016/17.

Following a spike in claims this year, for next year, the total number of new claims is forecast to fall, but FSCS expects the rising trend in complex claims in the life and pension intermediation sector to continue and expects to levy £171m, exceeding the annual limit for that class and triggering the contribution from all levypayers.

The overall level of FSCS management expenses, the cost of running the Scheme and of paying claims, will be £69m. That's up £1.8m from this year and reflects the growth in claims since the 2016/17 budget was set. If the costs of out-sourced claims handling are excluded, the budget is falling by £2.7m compared to this year.

FSCS Chief Executive, Mark Neale, said: "The Financial Services Compensation Scheme is there for people with nowhere else to turn when firms fail. So the £378m indicative levy represents the costs of protecting people. That protection generates consumer confidence and contributes to financial stability.

"We will ask life and pensions intermediaries to pay their share of an additional £36m to fund compensation for the high numbers of SIPP-related claims we are continuing to receive, but also need to trigger a cross subsidy for the first time. These claims relate to advice to switch pension funds into high risk investments. We previously flagged the potential for high costs here. We also need to raise £63m on general insurers to compensate policyholders of the Enterprise and Gable Insurance companies. And we currently expect a deficit of £15m on our home finance intermediation account due largely to the failure of one particular firm that gave bad advice to engage in risky property investments alongside mortgage advice.

"The financial services industry funds the protection we provide. We recognise the costs impact on firms, particularly in the light of the supplementary levies announced today, of which we seek to give as much advance warning as possible. That's why we're concentrating on reducing our overheads and constantly seeking value for money in our work. We'll continue that drive in the coming year and will also realise benefits from our online claims system."

Steven Cameron Pensions Director at Aegon, commented: “Today’s announcement regarding further increases in FSCS levies for life and pensions intermediaries highlights how important it is to overhaul the sharing of compensation costs across all industry players alongside a greater risk-based focus. With the £100m levy cap on life and pensions intermediaries being exceeded for the first time, there will be some sharing across other categories in the retail pool but more needs to be done to avoid overburdening the wider population of intermediaries. With the prospect of growing and volatile fees caused by claims often generated by a very small number of firms, the FSCS needs to be both forensic in identifying causes, but fairer in sharing compensation across the whole industry including providers, fund managers and intermediaries. Today more than ever, individuals need access to professional advice and intermediation as they take on greater personal responsibility for their financial futures.”

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