SIPP Claims Soar – Advisers’ FSCS bill to reach £213m

Levies across advice firms for the next financial year have been forecast at £213m by the Financial Services Compensation Scheme (FSCS).

The rise in Self Investment Personal Pensions (SIPPs) is to blame, with claims against SIPP providers expected to increase by more than double over the 2020-2021 period. This rise is due to nine providers collapsing since the start of 2018, with Berkeley Burke and GPC Sipp being the most recent ones to fold.

The FSCS stated:

“We now expect to make 7,700 decisions on these claims in 2020/21 which is a 114% increase on 2019/20.”

It also claimed that the increase in claims against SIPP providers will be responsible for £209m worth of costs through to 2021. Investment providers will be the ones expected to pick up the additional costs, though waves will be felt further along the chain when advisers write their bills.

Having being pushed beyond their £200m class limit on levies, they will not be forced to contribute to intermediaries. Even though the FSCS forecast a levy of £239m on the life distribution, pensions and investment intermediation class -which was £1,000,000 lower than last year – advisers are the ones expected to more of this current 2020-2021 levy because the provider contributions have been forecast to drop from £65m to £34m.

Also, due to a rise in pension claims, the FSCS requested that advisers fork out a supplementary £50m levy throughout the course of the previous financial year.

In spite of this increased forecast on levies, the FSCS is expecting fewer claims against adviser class firms in the 2020-2021 period: 14,474 claims were made against advice firms last year, with only 10,134 anticipated in the next financial year. This is mostly down to the now-collapsed broker, Beauford Securities, falling into the class in the year prior, increasing the number of claims.

The FSCS does believe, however, that advice about pension transfers is steadily increasing, with further high-value claims to follow into the next year. Knowing this, it intends to increase the levy charged across all financial service businesses from £548m in 2019-2020 to £635m in the upcoming year.

Reasons given for the increased levies include:

• £46m rise in compensation costs
• No £32m surplus available to reduce levies this financial year
• FSCS expected to recover less than the £39m it managed last year

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Article by Stuart Jones