FSCS levies increase following poorly advised SIPP Transfers

As reported by Money Marketing, Financial Services Compensation Scheme (FSCS) levies are to increase for the coming year, to reflect the growth in claims from poorly advised defined benefit pension transfers, according to chief executive Mark Neale.

Mr Neale recently wrote in his blog that the new levies, which will be published in April, will show that such claims have been on the rise for some time. Many of these claims concern “bad advice”, namely to transfer pensions savings from an occupational scheme and into a Self-Invested Personal Pension (SIPP). Mr Neale said that the scheme’s 2018/19 levies, which are paid by all those firms who are regulated by the FSCS, would reflect the increase in incoming claims.

This news comes in the wake of the FSCS issuing an additional £24 million interim levy for life and pensions advisers in January, as a result of the substantial increase in the amount of SIPP related claims in 2017/18. Also in January, the FSCS declared three SIPP providers in default due to “serious due diligence failures.”

The FCA recently proposed to increase their limit for such claims from £50,000 to £85,000 because of the increase in people investing their pension funds on retirement in drawdown products, as opposed to insurance-based annuities in a move described by Mr Neale as “very welcome.”

However, he also questioned whether this was a large enough step, as the FSCS is beginning to see claims arising from bad advice around pension transfers where the value of pension rights can be “in the hundreds of thousands of pounds.”

Mr Neale linked the risk of defined benefit pension transfers to a series of studies, which found that awareness of the FSCS is likely to lead people to make safer decisions when choosing products and also lead to greater sales of regulated products covered by the scheme. Advised clients are particularly likely to believe that the FSCS is important. The FSCS has established a new working group to analyse how information about the FSCS should be disclosed to consumers to see if it can reach a standardised format.

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