The growing number of complaints about self-invested personal pension (Sipp) operators means that the UK’s Financial Services Compensation Scheme (FSCS) needs to raise £635m for 2020/21.
This means that financial services firms will need to collectively stump up an extra £87m.
The lifeboat scheme gave three main reasons for the increase:
- The total compensation cost has increased by £46m – mainly due to increasing Sipp operator claims falling on the Investment Provision class;
- The 2019/20 levy benefited from an opening surplus of £32m, which is not available for 2020/21; and,
- The recoveries expected to be received in 2019/20 are £39m greater than forecasted for 2020/21.
Mis-advice
Marshall Bailey, chair of the FSCS, commented that a “major challenge for our financial services industry, which particularly involves the FSCS, is the continuing rise of complex pension claims”.
“These claims have, in recent years, overtaken payment protection insurance (PPI) in volume: now 40% of claims relate to pensions and 20% to PPI.
“The main causes are advice – and often mis-advice – to transfer out of defined benefit pensions, and the wrapping of risky and illiquid investments into Sipps.”
What does this mean?
Among the Financial Conduct Authority firms covered by the FSCS; the life distribution; pensions and investment intermediation class will have to collectively pay £213m next year – up from £189m this year.
There were 2% more complaints in 2019/20 than had been forecasted – reaching 14,474.
But the 2020/21 plan and budget assumptions expect there to be 28% fewer complaints next year – around 10,100.
“This year saw the consolidation of life and pensions intermediation and investment intermediation into one class,” the FSCS wrote.
“Within the class we experienced an increase in decisions during 2019/20 due to claims against Beaufort Securities Ltd, the largest default within this class.
“Sipp-related claims continue to be the main contribution within the class making up 43% of new claims. Claims for personal pension transfers remain an area of steady increase,” the lifeboat scheme added.
Supplementary levy
In a further update, the FSCS said it has to raise a supplementary levy of £50m from the life distribution, pensions and investment intermediation class.
This is up from £44m, which it reported in December 2019.
The main causes are “increased claims volumes and new defaults”.
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