Clean break transitional arrangements

The new funding model is divided into five broad classes (life and pensions; investments; general insurance; deposits; and home finance). Each class, except deposits, will have two Sub-classes, and the broad classes together will form a general retail pool if necessary.

There is a limit to the amount that can be levied from each Sub-class, each year. More information on the new funding regime is available from the FSA's website.

The 2008/09 levy period covers 12 months from 1 April 2008 and the first quarter of 2009/10. This takes into account the timing of levy receipts, assumed to be 1 July each year. Our current initial estimate for gross 2008/09 funding requirements is £130.8m to cover compensation costs (net of recoveries) and management expenses (net of interest).

The "clean break" transitional arrangements of the new funding model require FSCS to fix fund balances at 31 March 2008 in each contribution group. Firms must then be credited with their share of the balance of funds accumulated at 31 March 2008 in those existing contribution groups of which they are members, or issued with a debit note if the contribution group's costs exceed income.

We currently estimate that contribution group fund balances will amount to a net amount of some £100.1m at 31 March 2008. This leaves an estimated net amount of some £30.7m to be collected from firms.

The net amount to be paid by individual firms will depend on what credit (or debit) they receive, based on 2007/08 tariff data in their previous contribution group(s), combined with their share of the funding requirement in the new Sub-class(es), based on 2008/09 tariff data.

Firms will only receive credit or debit notes from a previous contribution group if they were a member of that previous contribution group from 1 April 2007. Details of the transition rules are available from the FSA (PS07/19, FSCS Funding Review - Feedback on CP07/5 and made text).

Firms not members of previous contribution groups but now allocated to relevant Sub-classes will pay their share of the full funding requirement in that Sub-class(es), without adjustment for credits or debits.


Fund balances and funding requirement estimates

Contribution group fund balance estimates and 2008/09 Sub-class funding estimates


How it works by Sub-class