FSCS confirms unchanged 2022/23 levy forecast of £625m and provides early indication of the 2023/24 levy.
The Financial Services Compensation Scheme (FSCS) today publishes its latest Outlook and confirms its total annual levy forecast for 2022/23. It also provides an early indication of the 2023/24 levy.
The total levy for the 2022/23 financial year remains as previously forecast at £625m. No additional levy is expected for the remainder of the current financial year.
To help the industry prepare for the year ahead, in this Outlook, FSCS publishes its first look at the levy forecast for 2023/24, which is £478m. This indicative levy is lower than 2022/23, primarily due to surpluses that are expected to be carried over. This includes:
- £91m in the Investment Provision class, mainly due to self-invested personal pension (SIPP) operator claims now expected in 2023/24; and
- £86m in the Life Distribution and Investment Intermediation class, mainly due to processing fewer complex pension claims than expected.
At the end of this financial year, across all classes, any surpluses will be carried forward and used to offset the 2023/24 levy.
FSCS expects to pay £592m in compensation in 2023/24. The total compensation for 2022/23 is now expected to be around £517m. Claims against firms that have already failed account for most of the 2023/24 forecast - approximately 80% of the total anticipated compensation costs. The remaining 20% accounts for compensation against firms expected to fail during 2023/24.
Compensation is expected to remain relatively high for several reasons, including:
- a continued trend of complex claims in areas such as pension advice and general insurance; and
- a lag between harm occurring and FSCS receiving claims. Approximately 80% of people who need to bring claims to FSCS did not realise they had been given unsuitable advice until at least five years after the event.
FSCS continues to work closely with its regulatory partners including the Prudential Regulation Authority, Financial Conduct Authority and Financial Ombudsman Service to monitor firm failures and the associated compensation cost within its forecasts.
An update on the assumptions behind the 2023/24 levy will be provided in the spring 2023 edition of Outlook.
Caroline Rainbird, Chief Executive of FSCS, said:
“With the increasing cost of living at the forefront of many people’s minds, we appreciate levy payers are looking for as much certainty as possible. With our latest forecasts, we aim to support our levy payers in their planning by providing as much notice as we can regarding anticipated costs.
“It is during times of economic volatility that FSCS plays a particularly important role in providing stability for consumers, helping increase their confidence and trust in the financial services industry.
“Research conducted in September this year tells us, that of those aware of FSCS, 82% feel more confident taking out a product that is FSCS protected, and 68% are likely to invest more money if the provider is FSCS protected.
“This demonstrates how FSCS’s existence helps to underpin a strong retail finance sector in the UK, and combined with access to sound financial advice, FSCS protection is providing valuable support to consumers.”
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