The Financial Services Compensation Scheme (FSCS) compensation costs for the life distribution and investment intermediation (LDII) class decreased to £203m ($263m, €234m) in the 2022/23 financial year.
This was a drop from £263m in 2021/22.
The body said that the decrease in compensation paid to customers was partly due to a reduction in compensation paid to customers for self-invested personal pension (Sipp) products from £94m last year to £61m in 2022/23. This was because of higher rejection rates and fewer decisions processed.
Other reasons for the decrease included a fall in compensation paid to customers relating to general investment products, from £38m in 2021/22 to £29m in 2022/23 because fewer claims were processed and there was also a £3m reduction in compensation paid to customers for AFX Markets Ltd in comparison with 2021/22.
The drop was also attributed to less compensation being paid out for complex pension claims (from £120m in 2021/22 to £87m in 2022/23).
Fewer complex pension decisions
The UK lifeboat scheme also said that less compensation for complex pension claims was paid out as a result of:
- fewer complex pension decisions being issued;
- macroeconomic factors, including increased interest rates, that impacted the pension redress calculation model and resulted in average compensation payments being lower; and
- due to a £24m reduction in compensation for Capital & Income Solutions Ltd and Pembrokeshire Mortgage Centre Ltd, as most of the compensation for these firm failures was paid out in 2021/22.
As these claims have a higher average compensation than other claims types in the class, this has resulted in an overall increase in average compensation paid, the FSCS reported.
The total levies received by this class was £299m, which included provider contributions from the investment provision, life and pensions provision and structured deposits classes.
Majority of claims for investment and pension advice
The FSCS report also revealed that the body supported around 68,000 customers in the last year. It either paid them compensation or enabled them to transfer to a new financial provider for their investment or insurance policy.
It also reported that total compensation costs were £403m, and that the majority of claims were in relation to investment and pension advice, as well as Sipp operator failures. There were also a number of claims paid out to customers for insurance-firm failures from previous financial years.
The FSCS paid compensation to customers who had experienced losses from 563 different authorised financial-services firms, including the 64 that FSCS declared in default during the period.
In total, more than 430 firms were investigated to confirm their solvency status, and to confirm whether any of their former customers would have eligible claims.
Uncompensated losses on upheld pensions claims amounted to more than £75m.
Recovery of £15m
During the year, FSCS recovered a total of £15m, of which approximately £12m was used to offset levies.
The remaining £3m was passed on to customers whose claims were above the organisation’s compensation limits.
The FSCS’s customer satisfaction score increased from a 12-month average of 84% in 2021/22 to 86% in 2022/23.
Fiona Kidy, FSCS chief financial officer, said: “The past year has been dominated by the rising cost of living, which in turn has also led to a greater focus on people’s finances. In connection with this, there has also been a greater focus on the protection that FSCS and other organisations offer.
“Highlighting the importance of FSCS protection and our limits was the near insolvency of Silicon Valley Bank UK Ltd (SVB UK). During March, our bank and savings protection checker received more than 100,000 checks in a single week. This is approximately four times the usual amount.
“Although FSCS ultimately did not need to step in, I’m very proud that it pulled out all the stops to ensure we were ready to help SVB UK’s customers.”