The Financial Services Compensation Scheme (FSCS) has confirmed its levy forecast for 2021/22.
In January 2021, during the FSCS’ Plan and Budget, it estimated the 2021/22 levy at £1.04bn ($1.46bn, €1.21bn) based on its own claims data and projections, as well as input from the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).
But, based on the latest data available, the lifeboat scheme has now revised its levy forecast for 2021/22 to £833m, £206m lower than the potential levy announced in January.
The FSCS said there are two main reasons for this lower forecast:
- Due to the extension of government support schemes, some firms that looked likely to fail this year could now fail in the 2022/23 financial year and beyond; and,
- In 2020/21, FSCS saw lower claims volumes relating to recent insurance failures than had been expected. There are also a number of self-invested personal pension (Sipp) operator claims that now expect to be paid in 2021/22, rather than in 2020/21.
Retail pool
The £833m levy for 2021/22 represents an increase of £133m compared to the 2020/21 levy (£700m).
The increase is due to a number of factors, including “higher value pension advice claims in the life distribution and investment intermediation class”, “pay-outs for the general insurance provision class” and “failures of Sipp operators in the Investment Provision class”, in line with trends FSCS has seen over recent years.
The FSCS said: “As a number of classes are likely to see more claims than they can be invoiced for in a year, the £833m levy is expected to include £116m for the retail pool.
“This is a separate pot that other FCA classes are required to contribute to if they have not reached their maximum levy limit, and another class has exceeded its own limit.
“Given the ongoing economic uncertainty, and in order not to raise a higher levy than it needs to, FSCS will continue to monitor likely failures and defer invoicing the £116m retail pool until a later point in the year, when the required amount is more certain.
“We will update on the likely invoicing date for the retail pool as soon as we can, and will give the industry 30 days’ notice before invoices will be issued.”
‘Re-forecasted failures’
Caroline Rainbird, chief executive of FSCS, said: “While it may be welcome news to see a lower forecast than announced in January, we do not call this a successful outcome or ‘good news’.
“There is still a chance that these re-forecasted failures could occur in the years ahead.
“We also appreciate the levy, even at this updated forecast of £833m, is too high and the cost could put pressure on firms’ finances.
“We are doing all that we can to help reduce the levy and are delaying calling for the retail pool to avoid invoicing for more than we need and to help spread the costs.
“Ultimately, to deliver a sustainable reduction in the levy over time, all stakeholders, including the industry, need to work together to tackle the root causes of the problem, to help drive better outcomes for consumers and a reduction in the levy.”
