FSCS warns SIPP complaints are pushing up levy

A rising number of SIPP complaints is creating upward pressure on the Financial Services Compensation Scheme levy, the body has warned. The Financial Services Compensation Scheme (FSCS) will impose a levy of £532m on firms this year, £16m more than it forecast in January due to concerns about the cost of SIPP complaints.The FSCS says the main reasons for the increase (£16m) between the forecast and final levies is “an uplift” in the number of claims expected against SIPP operators and an upwards revision to continuing costs in some historic insurance failures.In a statement today the FSCS said: “As in 2018/19, the main driver of the compensation costs falling on FSCS this year will continue to be pension claims. The bulk of these claims will continue to arise from bad advice to transfer retirement savings out of occupational schemes and into SIPPs - usually with a view to investment in risky and illiquid assets.”On SIPPs, the FSCS said the levy on the investment provision sector has increased by £38m since its last forecast due to "an increase in our estimate of the number of SIPP operator claims we expect to receive in the year."However overall the FSCS levy is £42m lower than the equivalent figure last year as compensation costs in some other areas have been lower than expected.The FSCS says the levy for 2019/20 is higher than it planned and will include management expenses of £74.6m.The body added that the recently-announced rise in many of the FSCS's compensation limits from £50,000 to £85,000 will add roughly £20m to compensation costs in 2019/20.Despite this upward pressure, better news on some long-standing claims means the government-backed investor compensation body will likely impose a total levy on the industry of £532m - £42m lower than last year.The positive news for financial advisers is that the levy required for Life, Pensions and Investment advice is being reduced by £29m to £211m because of a reduction in the expected costs of compensation, says the FSCS.Of this £58m is funded by provider contributions, leaving £153m to be paid by advisers themselves.The body says that its latest data suggests that pension claim volumes are flattening out and it has therefore reduced its pensions advice claims forecast from 10,600 to 8,200. In addition, it has re-assessed the allocation of claims against Beaufort Securities based on negligent advice to invest in unsuitable stocks, following a review of some cases. It now believes that about two thirds of these claimswill most likely arise from discretionary fund management activity and so be investment provision claims. This reduces the cost on life, pension and investment advisers by £8m, with a commensurate transfer to investment providers.Mark Neale, outgoing FSCS chief executive, said: "These trends underline the importance of the greater weight which FSCS intends to give in its strategy for the 2020s to both promoting awareness of FSCS protection and to preventing the mis-selling and advice failures which underlie these costs. We shall need the support of our partners in the industry and in the FCA in both respects."Details of the 2019/20 annual levy are in the latest edition of Outlook, the FSCS newsletter: https://www.fscs.org.uk/about-fscs/industry-enquiries/publications/industry-newsletters/fscs-outlook-april-2019/

FSCS warns SIPP complaints are pushing up levy

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