Life and pensions intermediaries are being hit with a £36m supplementary levy from the Financial Services Compensation Scheme (FSCS) following a surge in claims about bad advice relating to Sipps.
This additional £36m levy on life and pension advisers is on top of the annual levy for 2016/17 of £90m, meaning costs breach the £100m annual funding limit for that sector and triggering a cross-subsidy from other parts of the industry.
Supplementary levies are also being raised against general insurers and mortgage advisers, while the investment intermediation class will get a rebate following a £60m surplus following volumes being lower than FSCS’s forecast.
FSCS chief executive Mark Neale says, “We will ask life and pensions intermediaries to pay their share of an additional £36m to fund compensation for the high numbers of Sipp-related claims we are continuing to receive, but also need to trigger a cross subsidy for the first time. These claims relate to advice to switch pension funds into high-risk investments. We previously flagged the potential for high costs here. We also need to raise £63m on general insurers to compensate policyholders of the Enterprise and Gable Insurance companies. And we currently expect a deficit of £15m on our home finance intermediation account due largely to the failure of one particular firm that gave bad advice to engage in risky property investments alongside mortgage advice.
“FSCS has a duty to pay compensation claims as they fall due and that helps to promote consumer confidence. In our December issue of Outlook we provided firms with an indication of our expected compensation costs to help them prepare for what might be coming. We can now firm up those numbers and explain the supplementary levies they entail. We will retain £10m of the forecast £60m surplus in case of unforeseen compensation costs in the remainder of the year, and will refund £50m to investment advisers – in part set against the retail pool contribution.”
Aegon pensions director Steven Cameron says: “Today’s announcement regarding further increases in FSCS levies for life and pensions intermediaries highlights how important it is to overhaul the sharing of compensation costs across all industry players alongside a greater risk-based focus. With the £100m levy cap on life and pensions intermediaries being exceeded for the first time, there will be some sharing across other categories in the retail pool but more needs to be done to avoid overburdening the wider population of intermediaries. With the prospect of growing and volatile fees caused by claims often generated by a very small number of firms, the FSCS needs to be both forensic in identifying causes, but fairer in sharing compensation across the whole industry including providers, fund managers and intermediaries. Today more than ever, individuals need access to professional advice and intermediation as they take on greater personal responsibility for their financial futures.”