The Financial Services Compensation Scheme’s (FSCS) levy is forecast to rise to £415m in 2024/25, according to the lifeboat scheme’s latest Outlook.
Published today (9 November) the document also revealed the levy in the Life Distribution & Investment Intermediation (LDII) class is set to rise to £140m in2024/25 – a near £40m increase from 2023/24.
This increase is a result of lower expected surpluses being carried forward from 2023/24 to 2024/25 than were carried from 2022/23 to 2023/24, the FSCS said. It also reported the LDII class is expected to receive £53m in provider contributions from other classes during 2024/25.
Compensation costs for this class are also expected to increase by £42m to £224m with the main factors behind this increase including processing additional DB pension claims following recent failures, potential new firm failures and a number of SIPP decisions expected in 2023/24 moving into 2024/25.
To read more on this topic, visit: UK firm declared in default in regard to pension advice
Simon Harrington, head of public affairs at PIMFA, told International Adviser that while it was disappointing that the levy was forecast to increase, the trade body wanted to highlight the relatively stable cost of compensation over the preceding years.
Harrington said: “Our view has always been that anyone who falls on the FSCS has received an outcome it would be better to have avoided in the first place and relatively stable costs of compensation at least indicate we are currently not seeing a significant rise in claims.
‘Barrier to growth’
“This will, of course, provide little solace to firms who are ultimately required to fund these compensation costs. The cost of funding the FSCS represents a very real barrier to growth for many firms and it remains the case that alternative funding models should be pursed in service of the polluter pays model that industry stakeholders and the FCA agree would be preferable.”
He added: “Our view continues to be that FCA fines should be used to fund compensation costs rather than being diverted to the Exchequer as this would be the purest distillation of a ‘polluter pays’ model.
“Going forward we are of course concerned about how long claims take to work through the system and the potential this may have to contribute to significant rises in the cost of funding the FSCS in future. We remain supportive of a broader review of how the FSCS functions and what protection should be afforded to UK consumers.”