FSCS levy almost halves to £270m

The Financial Services Compensation Scheme (FSCS) has revised its compensation and levy forecasts for 2023/24.

The total levy forecast for 2023-24 is now £270m, down from the £478m estimated in November.

The 2023/24 forecast levy has reduced due to an increased surplus from 2022/23, largely due to lower volumes of pensions decisions and large insurance pay-outs being delayed or settled at lower amounts.

However, the FSCS still expects to pay £471m in compensation during 2023/2024 – the sixth year in a row that compensation costs are close to or above £500m.

The Scheme says this is due to "increasingly complex firm failures" relating to ongoing claims management of insurance estates as well as SIPP and defined-benefit pension advice claims.

As a result, advisers have not seen their costs fall by as much as other sectors. The amount advice firms are being asked to pay has fallen by just £4m to £101m.

Caroline Rainbird, chief executive of FSCS, said: “The levy enables FSCS to continue to provide a trusted compensation service that helps build confidence in the financial services industry, particularly during economic and market volatility.

"Whilst the level of compensation expected this year is lower than it has been in some recent years, this is the sixth year in a row that compensation costs are close to or above £500m.

“We will continue to closely monitor the volume and complexity of claims throughout the year and will share our next update on the levy in the autumn edition of Outlook.“

Simon Harrington, head of public affairs at PIMFA, commented: “The news that the Financial Services Compensation Scheme (FSCS) levy is forecast to fall to £270m in 2023/24 is extremely welcome and will come as a relief to all well-run financial services firms.

“While this reduction represents good news in the short-term, we still have medium to long term concerns about the future compensation framework and the costs that are likely to inevitably arise from pension freedoms and the Covid pandemic. It is therefore likely that today's forecast represents short-term respite for firms.

“As costs rise, it is vital that the Treasury recognises the burden placed on well-run firms. We would still urge the Regulator and more importantly the Treasury to consider a longer-term solution that uses alternative sources of funding. Financial Conduct Authority (FCA) fines, which are currently diverted to the Exchequer remain a sizeable source of income which would be consistent with our, the FCA's and wider industry's view that the polluter should pay.”