An increase in SIPP claims has seen the FSCS forecast a £213m levy across financial advice firms over the next financial year.
Financial Advisers are expected be hit by an increase in the levy it pays to Financial Services Compensation Scheme, to the tune of £213m in the next financial year. This is as a result of the number of claims against Self-invested Personal Pension (SIPP) providers rapidly increasing year-on-year.
Claims against SIPP providers are estimated to double over the next financial year, following the collapse of nine providers since January 2018 – the most notable being the recent case of Berkeley Burke.
The FSCS stated:
We now expect to make 7,700 decisions on these [SIPP] claims in 2020/21 which is a 114% increase on 2019/20.
The FSCS expects dealing with the rise in claims against SIPP providers to cost £209m over the next financial year, hence the increase in levy.
In addition to this, in its annual plan and budget, the FSCS also set out plans to increase the levy it charges across all financial services businesses from £548m in 2019/20, to £635m in the upcoming financial year.
The three reasons given by the lifeboat fund to explain the £87m increase were:
- a £46m rise in compensation costs, driven largely by a rise in complaints against Sipp operators, the cost of which will be borne by investment providers;
- unlike last year there is not a £32m surplus available to reduce the levies;
- the FSCS expects to recover less than the £39m it secured from failed firms last year.
What is the FSCS?
The Financial Services Compensation Scheme (FSCS) is a statutory deposit insurance and investor compensation scheme. It can compensate clients if a financial firm is unable to. It has often been described as a “lifeboat” fund.
It is funded by the financial services industry. Every firm authorised by the UK regulators is obliged to pay an annual levy, to cover any compensation.
It is independent of the government and the financial industry, and was set up under the Financial Services and Markets Act 2000, becoming operational on 1 December 2001. They do not charge individual consumers for using their service.
Smooth Commercial Law work alongside the FSCS to get clients the compensation they deserve. The FSCS have protected more than 4.5m people and paid out £26bn in compensation.
Continuing the worrying trend
The news comes after last year’s extra levy of £69m. The FSCS had also been forced into raising the levy exactly 12 months ago after rising SIPP and pension transfer claims.
At the time, the FSCS said it had expected more SIPP claims over the next 12 months – a prediction that did come true. They estimated a further 1,369 claims to the value of £31m.
The FSCS was at the time monitoring developments in the sector, such as SIPP operator cases going through the courts, to see how they might impact claims.
It would appear that the financial industry has not learnt from these lessons, with the continuing trend being to increase compensation for victims, instead of nipping the issues in the bud.
How can Smooth Law Commercial help?
At Smooth Commercial Law, our team of experts have extensive experience in dealing with a whole manner of claims that arise from negligent and/or unsuitable financial advice. We are seeing an increase in claims for mis-sold pensions, and have managed to secure compensation for many of our clients.
Should you have a claim, we can deal with your case and look to recover compensation for not just your loss of investment but also any adverse tax liabilities that you may now be facing as well.