The consultation on Financial Services Compensation Scheme (FSCS) levies has been welcomed after concerns that the pension freedoms could open the door to more claims, further driving up the fees FSCS firms pay.
The FCA, in its consultation document, stated that FSCS levy increases have been largely driven by the failure of firms that have given unsuitable investment advice to consumers.
Some firms are concerned that this may increase in future because of the introduction of the pension freedoms, as consumers have more responsibility for saving for a pension and using their pension savings to fund retirement.
The FSCS’s Annual Report and Accounts 2015/16 noted that total levies in 2015/16 came to £338m ($428.7m, €403.3m), an increase of £107m. The increase is mainly because of a rise in the levies on the Life and Pensions Intermediaries of £85m, as a result of the increase in Sipp claims.
Many argue it is unfair that they should have to bear the cost when these firms, known as polluters, fail.
Steven Cameron, pensions director at Aegon, warned that “the FCA must avoid over-burdening intermediaries with a disproportionate share of overall levies and should explore fully how to make use of credit facilities to avoid large and unpredictable changes in firm levies”.
“At an industry level, it’s important we have a sustainable FSCS which provides consumers with the confidence that if things go wrong they won’t lose out. But it’s ultimately not in the customer’s interest if the funding comes at the expense of unreasonably high levies for advisers,” he said.
Chris Hannant, director general of the Association of Professional Financial Advisers (Apfa), welcomed the FCA proposals “as a step forward”, but agreed with Cameron that “the burden shouldn’t disproportionately fall on financial advisers”.
“It is good to see that the FCA acknowledge that this should not solely be an exercise in cutting the cake, but it is also essential to look at the scale of the levies. In particular, the growing problems around Sipps and pensions must be addressed. Preventing consumers being ripped off should be a high priority for the FCA.”
Keith Richards, chief executive of the Personal Finance Society, said: “It is pleasing that the FCA has acknowledged in its consultation paper that the burden of funding the FSCS has fallen disproportionately onto intermediary firms in recent years, however the idea of shifting the burden to product providers should be approached with caution.”
