Investors lost 1 billion pounds due to FSCS cap

Due to the cap in compensation payouts allowed by the FSCS, it is estimated that investors lost 1 billion pounds over the course of the last six years.

More than fifty percent of these losses were made by savers looking into pension advice claims, according to this source. Due to this, the lifeboat scheme is calling out for an increase of the current £85,000 threshold, allowing for more investors and savers to be cushioned against potential losses.

The lifeboat scheme also noted the Financial Ombudsman Service (FOS) has been empowered with the ability to award up to £375,000 from the 1st of April 2022, with its limits simply readjusting automatically on an annual basis according to inflation.

Sadly, this does not apply to the Financial Services Compensation Scheme (FSCS), where their limit is a fixed amount, but the lifeboat scheme believes that a “strong case” can be made for a similar inflation adjustment mechanism to be implemented here.

Simon Wilson, the FSCS head of resolution stated:

“The total number of claims where the customer’s loss was over the relevant limit was almost 3,600 in the 2021/22 financial year that has just ended. This number has risen steadily over the past six years, and in that period has resulted in just short of £1bn in loss not being paid back to customers as compensation.”

He added:

“When we declare an IFA in default, we see claims where customers have lost hundreds of thousands of pounds, life changing sums of money that we simply can’t return due to the limits in place.”

The balancing act

The trade-off with such an increase, of course, would come at a price. The funds which pay compensation out to those making claims comes from a levy which is paid directly from the pockets of financial service firms.

The 2022/2023 levy is expected to sit at around £625,000,000, meaning that any increase to the cap would inevitably lead to increased pressure on the levy itself.

As always, those firms doing the right thing are paying the price for the unscrupulous lenders out there, as it is they whose levies are being dipped into in order to compensate clients who have suffered as a result of investments turning sour.

Any increase in compensation limits might likely be as a result of a theoretical assessment on how the FSCS is funded as a whole.

Further reading

Mis-sold Investments – Oakwood Solicitors

Mis-sold Pensions – Oakwood Solicitors

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