SIPP claims force FSCS to add £23.9m extra levy

SIPP compensation claims above predictions have forced the Financial Services Compensation Scheme (FSCS) to ask financial advisers and providers to chip in an extra levy of £23.9m. The supplementary levy arises from continuing growth in the volume of SIPP-related claims falling on life and pension advisers. However, the levy will be lower than feared because the average cost of each Sipp claim fell to £23,000 from£30,000 at the start of January 2017.The consumer compensation organisation outlines the levy in the latest issue of its Outlook newsletter published this week. Writing in Outlook, Mark Neale, FSCS chief executive, says that he had cautioned earlier in 2017 that the FSCS did not have “20/20” vision when it came to levies for the year ahead and SIPP claims had amounted to more than expected.He said that over that year to 30 June 2018, the FSCS can foresee the need for one supplementary levy and one return of an excessive surplus under its policies to general insurers.He said: “Our forecast in April was that these costs would amount to around £146m, but, because of the uncertainty attached to this forecast, we elected to raise a levy of only £100m – the maximum for this sector.“We now calculate that, on current volumes and average costs, we shall need to raise only around an additional £24m in 2017/18. This cost will trigger a cross-subsidy and fall on the retail pool.”One additional factor is also a rule change on when the levy is collected. The FSCS’s levy year for the industry classes regulated by the FCA, which has previously run from 1 July to 30 June, will, from 2018/19, align with the financial year.He said that this was “a welcome tidying up” but it does mean that FSCS must treat either 2017/18 or 2018/19 as a nine-month year. That in turn raises the question of whether, in a nine-month year, annual limits should be abated commensurately.It plans to meet the new criteria by• proceeding with the levies announced in April and already collected for the levy year running from 1 July 2017 to 30 June 2018 and raising any supplementary levy or returning any excessive surplus that may arise over this period;• setting the levies for the 2018/19 financial year to reflect the additional costs expected to fall in that year between 1 July 2018 and 31 March 2019; and• pro-rating the levy limits applicable in that financial year, 2018/19, to 75 per cent of the annual limits to reflect the fact that firms’ revenues available to fund the levy will be commensurately lower over this time period.He also acknowledged errors made by the SCS in handling Arch Cru claims. Over five years from 2012, the FSCS made under-payments of just over £814,000 and over-payments of just over £700,000. It has made goodthe under-payments to the customers affected and is seeking re-payment of over-payments.On the positive side, more claims are now being made online, speeding up the compensation process. Now 80% of direct claims and 90% of claims from representatives are made online.

SIPP claims force FSCS to add £23.9m extra levy

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