The Financial Services Compensation Scheme (FSCS) revealed it had its “most productive operational performance year to date” with around 132,000 claims being made and more than 108,000 of which ended up in either paying customers compensation or helping them transfer to a different investment or insurance policy.
Total compensation costs for the 2021-22 financial year came to £584m ($732m, €683m) – at a similar level to 2020-21 – which was paid out to clients who had experienced losses from 1,614 companies, 66 of which failed during the 12-month period.
On top of the industry-funded work, the FSCS also delivered a compensation scheme to the victims of defunct investment firm London Capital & Finance (LCF) on behalf of the UK government. It paid more than £114m to around 9,000 investors within six months.
The lifeboat scheme added that it was able to recover £16m from the estates of failed firms and around £13m was used to offset levies, with the remainder passed on to customers whose claims were above its £85,000 compensation limit.
Less compensation than expected
The FSCS also delivered good news for intermediaries as it revealed that the life distribution and investment intermediation (LDII) and investment provision classes did not breach their respective annual levy limits as it had anticipated, meaning that it did not need to raise the retail pool levy.
This is because the lifeboat scheme ended up paying £260m less in compensation and £11m less in related management expenses than it forecasted in May 2021.
The reason for lower levels, the FSCS said, is that it expected higher compensation payments for Sipp operator and complex pension claims which, in the end, did not materialise.
But LDII, investment provision and general insurance provision made up the vast majority of cases – amounting to 98% of all claims.
Focus on awareness and prevention
Caroline Rainbird, FSCS’s chief executive, said: “I am pleased to report that for the second year in a row, we achieved record levels of customer satisfaction. Our customers are at the heart of everything we do, and we are continuously striving to improve our customer experience.
“During the past year, we also put significant energy into promotion and prevention.
“The pensions and investments campaign we started last year has now reached more than 7.4m people, and we recently launched two new channels to help spread awareness of FSCS protection, through Instagram and a Podcast series called: Protect your Money with FSCS.
“Raising awareness of protection, and our limits, contributes to consumers’ ability to make informed choices about their finances.
“It is worth noting that the compensation we paid to customers during the past financial year does not represent the full amount of financial harm being experienced.
“There were £214m in losses that we could not compensate customers for, due to our limit, which is currently £85,000 for most claims.
“We also cannot compensate for the emotional loss associated with financial harm which can be devastating.
“Preventing this harm from occurring in the first place remains the best way to address this issue and improve outcomes for consumers.”