FSCS warns of £46m extra levy as 500 SIPP claims on the way

The Financial Services Compensation Scheme has warned that there is a ‘high risk’ of a supplementary £46m levy on advisers and providers in the coming due in part to rising pension and SIPP claims. The FSCS says that it expects to have to fund 500 additional SIPP claims in the coming year alone. Rising pension claims mean the statutory body needs to raise more money to pay compensation claims, according to the latest FSCS newsletter released today. The FSCS, headed by new chief executive Caroline Rainbird, is also suffering rising costs itself as it deals with more claims. Commenting on the risk of a supplementary levy, the FSCS said: “We expect to raise a supplementary levy and forecast £46m will be needed from the (Life Distribution, Pensions and Investment Intermediation) class (including the provider contribution). The FSCS said it had seen an increase in expected compensation in this class of £44m (23%) compared to the levy forecast. The main area of claims, £162m of total costs of £237m, is in relation to pension advice. The FSCS said: “We have experienced more complex and more expensive claims in this area and this has increased the cost by £20m.” The FSCS also expects to make 1,200 (58%) more decisions in relation to investment claims against a variety of firms, many related to the recent failures of SVS Securities and Reyker Capital. A shortfall of £14m is possible here and an additional levy also a possibility. The FSCS also expects to fund 500 additional claims this year related to SIPP operators following the recent failures of Lifetime SIPP, Guardian and Berkeley Burke. The FSCS says supplementary levies are not certain and it will update the industry in the new year. In terms of its own costs, it is forecasting it will exceed its £74.6m budget by £2.6m (3.5%). It says the key drivers for this are “unforeseen” rises in outsourced claims volumes relating primarily to SIPP and Pension claims of £4.7m (4,100 increase in outsourced claims volume vs. budget). It also says that due to the volume and complexity of some claims its legal expense forecast has risen by £1.5m. It expects to dip in to reserves and is also making efforts to keep costs down. On London Capital & Finance, the mini-bond firm which collapsed owing investors over £200m, Caroline Rainbird, the new chief executive of the FSCS, said the FSCS and FCA were continuing to investigate this “complex matter” and updates would be issued in due course.

FSCS warns of £46m extra levy as 500 SIPP claims on the way

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