The FSCS have published their latest edition of Outlook and provides a final update for the 2023-2024 levy as well as a first look at the 2024-2025 forecast.
Final Update on 2023 – 2024 Levy
The FSCS has confirmed that the total levy remains unchanged and as forecast which was set earlier this year at £270million.
The FSCS estimate that the total compensation payments this year to be £435million and they do not expect to need to request any additional levies from firms during the 2023-2024 financial year.
The total compensation figure is a reduction of £36million from the last forecast the FSCS published in May 2023. This is mainly driven by fewer claims decisions than anticipated in the Life Distributions & Investment class. The FSCS explains that there were a number of reasons for fewer claim decisions including changes to how pension re-dress is calculated and third-party response times.
The FSCS expects to have some surplus balances at the end of the financial year in March 2024. The anticipated surpluses will be used to offset the levy for firms in 2024-2025.
2024 – 2025 Initial Levy Forecast
The initial forecast for 2024-2025 is £415million.
This figure, of course, is an early indication and is subject to change. The figure is currently based on compensation costs totalling approximately £457million in the 2024-2025 financial year.
The levy figure is lower than the compensation figure as the FSCS expect surpluses carried forward from 2023-2024. This is coupled with recoveries the FSCS anticipate making from failed firms in 2024-2025.
In excess of 80% of the total compensation that the FSCS expects to pay out in 2024-2025 relate to claims made against firms that have already been declared in default. Less than 20% is reserved for compensation related to firms they expect to fail in the future.
The FSCS’ key drivers behind the compensation cost forecast for the next financial year include:
- Defined benefit pension payments following recent firm failures
- Payments against insurance firms that failed in previous years in the General Insurance Provision class; and
- Payments for self-invested personal pension (SIPP) operator failures within the Investment Provision class
The FSCS conclude that compensation levels over recent financial years, including the next financial year, have remained relatively stable despite the levy rising or falling.
Further information and the full Outlook report can be found on the FSCS website.
Further reading
Mis-sold investments – Oakwood Solicitors
Mis-sold pensions – Oakwood Solicitors
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Stephanie Walker joined Oakwood Solicitors in October 2016. Stephanie is Deputy Head of the Finance Litigation Team and works closely with the Head of the Department.
In July 2022 Stephanie assumed…
