Our November 2021 Outlook
FSCS Chief Executive Caroline Rainbird introduces our November 2021 Outlook, focusing on the 2021/22 levy and our forecast for the 2022/23 levy.
Over the past year, we have faced an unprecedented economic situation which has made it particularly difficult to forecast potential failures and the level of compensation we need to pay to our customers.
With this uncertainty in mind, we made the decision back in May to hold off invoicing for the retail pool element of the levy. This is a separate pot that Financial Conduct Authority (FCA) classes are required to contribute to if they have not reached their maximum levy limit, and another class has exceeded its own limit. Holding off invoicing the retail pool gave us time to gain a better understanding of failures for the current financial year.
2021/22 latest forecast
At this year’s mid-point, the total levy for 2021/22 is now £717m. This is lower than our previous forecast but an increase of £17m from last year’s levy. This means we can now confirm that we will not be calling for a supplementary levy or invoicing the retail pool this financial year.
We must be clear that we are not yet seeing a long-term fall in compensation costs. Instead, a number of failures we expected this year did not happen and we expect may now fall into the next financial year or beyond.
First look at the levy for 2022/23
We have also listened to feedback from the industry and, to help you prepare for the year ahead, in this Outlook we are publishing our indicative levy forecast for 2022/23 of £900m.
This figure includes an approximate amount for our management expenses, which make up a small proportion of the overall levy and which will be consulted on in January 2022. Although subject to change, we hope that publishing this forecast earlier than usual is helpful.
Getting customers back on track and helping build confidence in the industry are two of the main reasons FSCS exists, but our data and insights show that consumers continue to experience harm. This in turn is increasing compensation costs and necessary levy funding by the industry.
To take pensions as an example, excluding self-invested personal pension (SIPP) claims, the number of compensation claims has increased by 26% year-on-year for the last four years. Unfortunately, the number of these customers with losses over our compensation limit increased by 15% last year.
It is important to ensure consumers have the right information so they can make informed financial decisions that are appropriate to their circumstances. We are playing our part in helping to identify and address the root causes of consumer harm. For example, by running consumer awareness campaigns and working with the regulatory family to confront scams, phoenixing and bad practice.
We are also working closely with the FCA on its Consumer Investments Strategy. This strategy outlines the FCA’s aim to help stabilise the level of compensation. Alongside this, we will also be looking closely at how we can contribute to the FCA’s upcoming Compensation Framework Review, which aims to ensure that the current framework is appropriate and proportionate.
Against the backdrop of a sector that contributes £136bn to the UK economy and employs millions, we are a relatively small player, employing a team of 242 people with an annual budget of £91m this year. We cannot and should not tackle the issue of the rising levy alone.
We will continue to highlight the importance of the wider industry in playing its part. It must proactively call out poor behaviour and play a greater role in identifying sources of consumer detriment and practical solutions. It is only through serious action and joint collaboration that we can properly remedy the issues behind the rising levy.