Advisers get £36m extra FSCS bill for Sipps and £50m refund

Advisers categorised as pensions and life intermediaries face paying an extra £36m to the FSCS next year due to rising cost of Sipps. But investment advisers have been handed a £50m refund by the body.Announcing further details of the Budget for 2017/18, officials revealed three supplementary levies - to meet “unforeseen compensation” costs.The levy on life and pensions advisers will trigger contributions from firms in other sectors.Overall, the FSCS expects to levy the industry £378m, down from £401m in 2016/17.The supplementary levies are for:· General insurance provision (£63m)· Life and pensions intermediation (£36m)· Home finance intermediation (£15m)Mark Neale, chief executive of FSCS, said: "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."The additional £36m on life and pension advisers supplements the annual levy for 2016/17 of £90m, the FSCS said. This will exceed the £100m annual funding limit for that sector and will trigger a cross-subsidy from other parts of the industry through the retail pool to fund the remaining £26m.The £60m surplus on the Investment Intermediation class reflects claim volumes being lower than FSCS's forecast.Mr Neale said: "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)."Invoices will be issued to firms (except general insurance brokers, and investment advisers, whose existing accounts will fund their contributions to the retail pool) and credit notes to the investment intermediation sector around the end of January.The overall level of FSCS management expenses, the cost of running the Scheme and of paying claims, will be £69m. That was up £1.8m from this year and reflects the growth in claims since the 2016/17 budget was set, officials stated. If the costs of out-sourced claims handling are excluded, the budget is falling by £2.7m compared to this year.Steven Cameron, pensions director at Aegon, said the extra levies for pension advisers "highlights how important it is to overhaul the sharing of compensation costs across all industry players alongside a greater risk-based focus".He said: "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.”

Advisers get £36m extra FSCS bill for Sipps and £50m refund

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