The Financial Services Compensation Scheme (FSCS) has reported that its management expenses budget for 2022/23 will be £95.5m ($130.1m, €114.5m).
This is a £5m increase from the estimates it announced in January 2021.
There will be a £3.4m rise in volume-related costs, associated with investigating and assessing claims, and a £1.5m climb in controllable costs, which includes rent and costs related to its business support functions such as HR and IT.
the lifeboat scheme has also proposed an unlevied reserve of £15m, which means an overall management expenses levy limit of £110.5m.
The FSCS said there are a couple of reasons for the budget surge, such as:
- An ongoing trend in increasing numbers of complex claims that require additional time, resource and skilled expertise to process, eg for pensions and investment advice; and
- In 2022/23, it expects complex claims to account for approximately 43% of all decisions. This is an increase of 26% for 2021/22.
Caroline Rainbird, chief executive of FSCS, said in a statement on 12 January 2022: “A key driver behind the expenses we are anticipating for 2022/23 is an ongoing trend in more complex claims with higher processing costs.
“Of particular note is an increasing number of claims coming through from customers who were given poor advice to move their pensions into unsuitable investments. These claims cost us more to process as they have longer handling times and require specialist staff to assess them and calculate the necessary compensation.
“As well as more pension-related claims, we are seeing more individual firm failures that are associated with multiple financial products which are also complex to process.
“We are doing everything within our power to keep our costs down, including making strategic choices to reduce spend across the business and keeping the rise in our controllable costs below 3%. That said, it is important for the industry to be aware that despite our efforts, the sheer complexity of claims means we will likely see a rise in our management expenses over the coming years.”