FSCS CEO, Martyn Beauchamp

FSCS's May 2024 Outlook statement

Welcome to May 2024’s Outlook statement. This latest edition provides an update on compensation figures and the levy for 2024/25, following the first look we published in November. 

In addition to this statement, we have a dedicated webpage at www.fscs.org.uk/outlook where you can find more information and the Outlook archive. 

Reflections on the previous year 

As detailed in this statement, in some classes we upheld fewer claims than expected in 2023/24. The amount of compensation paid on some claim types was also lower, impacted by the broader economic conditions. To illustrate, the average compensation amount on pension transfer claims was around £35,000 in 2023/24, whereas in 2022/23 it was almost 30% higher at around £45,000. 

The timing of larger failures has also impacted the number of claims we were able to complete during 2023/24, hence our year-end figures. Firms such as Rowanmoor Personal Pensions Ltd, which was declared in default in December 2023 with more than 1,500 claims against it, have made a difference to our forecasts with many compensation payments moving into the next financial year. The pace of remediation in the building sector has also meant a number of high value policy claims for a failed insurer, East West Insurance Company Ltd, are being settled later than initially anticipated. 

At the same time, we made a number of successful recoveries in 2023/24, with more than £54m recovered from the estates of failed firms and other third parties.  

Altogether, this means surpluses in some funding classes have been carried forward to 2024/25.  

Our Annual Report, which will be published in the summer, will include full details of our performance and claims figures for 2023/24. 

Finding the balance in 2024/25 

In addition to surpluses carried forward from 2023/24, we’ve refined our forecast for the year ahead – learning from what we’ve seen recently and taking note of persisting trends. This means a reduction in the compensation we expect to pay in 2024/25 (now £363m) and a decreased levy from our early forecast in November 2023 (now £265m). 

Predicting failures and claims volumes in advance is difficult, not least due to external conditions that are beyond our control such as the timings of firm failures or prevailing economic conditions. Customers often contact us many years after the firm they had been doing business with failed. Indeed, around 85% of claims are made five or more years after the original advice was given, which means it can be challenging to predict when a claim will be made.  

Each year, these uncertainties mean it’s likely that we’ll either find ourselves in the situation where we have surpluses, or we need to ask for a supplementary levy.  

First and foremost, we know that supplementary levies might be difficult for industry to manage, and the way we forecast means we haven’t needed to raise any since 2020. However, large surpluses are also not ideal, and we're being cautious with our planning for the year ahead. One area we're mindful of is recoveries, as the timing of their receipt is often unpredictable. In November 2023 we forecasted around £7m for the year ahead - we now expect to recover £17m. Any more than this will of course be welcome news but will change our forecasts and could result in further surpluses. 

We’re transitioning to a new operating model this year and have factored the costs associated with this into our forecasts for 2024/25. As detailed in January’s Budget Update, we’re increasing our in-house resource, and we’ve built an appropriate provision into our management expenses to allow for an overlap as we bring new teams on board. As with any change, there are risks which could lead to unexpected costs. We may face recruitment challenges or need to adjust our resourcing to meet unexpected needs.  

We reached the first big milestone in the transition to our new operating model on 1 April by opening our in-house contact centre. The team has been performing well, and it’s fantastic having them, and by extension our customers, at the heart of the office. We’ll continue to share updates on this strategically important transition throughout the year.  

The next Outlook will come in the autumn, with a half-year update and a first look at 2025/26.