The Financial Services Compensation Scheme (FSCS) has revised its levy for the 2022/23 financial year.
It has reduced the levy to £625m ($785m, €735m) after it published an early forecast of £900m in November 2021.
The UK lifeboat scheme said that the forecast levy figure has reduced due to:
- A surplus from the 2021/22 levy has been carried over into 2022/23 which has reduced the amount of money FSCS needs to raise from firms to cover the costs of compensation;
- The uncertain and rapidly changing economic situation continues to pose a challenge when it comes to forecasting when failures will occur, and when compensation costs will materialise as a result;
- An overall decrease to the compensation forecast for 2022/23 of £162m, which includes a £65m reduction in the life distribution and investment intermediation (LDII) class and a £99m reduction in the investment provision class; and
- A retail pool contribution will not be required in 2022/23 as the FSCS no longer expects the LDII class to breach its annual levy limit and need additional funding.
Although the levy has reduced, the FSCS expects to pay its customers more compensation in 2022/23 than it did in the previous year totalling £698m.
Adviser levy
The 2022/23 levy payable by firms in the LDII class, which includes financial advisers, is £213m.
This is £27m lower than November’s forecast levy and the total levy paid by this class in 2021/22.
The main reason for the reduction is lower compensation costs. This is because the FSCS received fewer claims than expected related to complex pension advice and more claims related to self-invested personal pension (Sipp) advice.
Sipp advice claims tend to have lower average compensation pay-outs than the more complex claims related to pension advice.
‘Trusted compensation service’
Caroline Rainbird, chief executive of FSCS, said: “The levy enables FSCS to continue to provide a trusted compensation service that helps build confidence in the industry, particularly during heightened economic volatility.
“While the headline levy number has decreased since our initial forecast in November, the total amount of compensation we expect to pay is greater than last year. Longer-term data suggests that the amount of compensation we pay to customers will continue to increase.
“We have faced criticism from some levy payers over the size of their FSCS levy bill in recent years, but these costs are only a symptom – driven by poor consumer outcomes and the compensation we need to pay out as a result.
“FSCS is keen to play a positive and proactive role in shaping the long-term future of the UK’s compensation regime, and we believe our submission to the Financial Conduct Authority’s compensation framework review demonstrates our commitment to being a leading and thoughtful voice in this important debate.”
‘Extraordinary levels’
Pauline Hawkes-Bunyan, director of business, risk, culture and resilience at the Investment Association, said: “While we welcome the FSCS’s commitment to constructive dialogue on the appropriateness of the compensation funding model, we’re disappointed to see that the levy is forecast to continue rising at extraordinary levels.
“Urgent reform is needed to ensure the FSCS is proportionate on the sectors that contribute rather than being accepted as a cost of doing business in the UK.
“It’s vital that the scheme is fit and fair for the future – one that protects consumers, retains their trust and does not deter international businesses from locating themselves in the UK – and we’ll continue to engage with the FCA and FSCS on this important matter.”
