The Financial Services Compensation Scheme (FSCS) has announced a supplementary levy of £24 million for 2017/18 following the ‘continuing growth’ of Sipp claims.
In its update for the year, FSCS chief executive Mark Neale, said the continued number of Sipp claims have meant a supplementary levy is required for financial services firms.
‘The supplementary levy arises from continuing growth in the volume of Sipp-related claims falling on life and pension advisers,' he said.
'Our forecast in April was that these costs would amount to around £146 million, but, because of the uncertainty attached to this forecast, we elected to raise a levy of only £100 million – the maximum for this sector. We now calculate that, on current volumes and average costs, we shall need to raise only around an additional £24 million in 2017/18,’ he said.
This extra levy will trigger a cross subsidy and will be paid by the ‘retail pool’ which is shared across categories of firms.
The FSCS said there has actually been a slight decrease in its forecast for Sipp claims, as the average compensation paid out for consumers has reduced from £30,000 to £23,000. However this has been offset by a 4% rise in the number of these claims and a rise in the upheld rate from 61 to 66%
The lifeboat added because it has already raised £100 million from the life and pension advice class there will be a £24 million levy from the retail pool which is shared among financial services firms.
This is not the first time the lifeboat has announced an extra levy because of Sipp claims, for the previous year an extra bill over £100 million was placed on advisers.
The levy for the investment intermediation class meanwhile was kept largely flat at £88 million for 2017/18 with a surplus expected for this group. The FSCS did note the collapse of the investment manager Strand Capital meant the FSCS is not proposing a repayment to firms yet.
The Financial Conduct Authority (FCA) is currently consulting on reforms to FSCS funding which may see the merger of life and pensions and investment intermediation classes as well as providers paying 25% more to the levy.
The FCA has also proposed the introduction of ‘surety bonds’ which would cover losses when a firm collapses.
‘FSCS is fully supportive of the FCA’s work in this area as the scheme was always intended as a fund of last resort and such measures may reduce the overall FSCS bill for firms remaining in the industry,’ the lifeboat said in a statement.
‘FSCS is also supportive of the FCA plans to consider a package of enhanced measures for the monitoring and supervision of the advice sector as a priority for its 2018/19 business plan.’