The Financial Services Compensation Scheme (FSCS) has revised its levy forecast for 2021/21 down from £1.04bn to £833m.
In the lifeboat fund’s latest outlook report, published this morning, it announced the £206m lower reforecast.
It predicts levy payers will have to contribute less than originally anticipated due to the extension of government support schemes and lower claims volumes for recent insurance failures than expected.
The £833m levy for 2021/22 represents an increase of £133m compared to the 2020/21 levy (£700m).
FSCS puts this down to higher value pension advice claims in the life distribution and investment intermediation class, pay-outs for the general insurance provision class and failures of SIPP operators in the investment provision class.
It says this is “in line with trends FSCS has seen over recent years”.
But while the levy has been revised now, it could still go up and may be higher in the coming years. The FSCS points out that firms that looked likely to fail this year have managed to hold on because of government support but they could now fail in the 2022/23 financial year and beyond.
The billion pound forecast was revealed in January when the FSCS published its plan and budget. The levy was based on its own claims data and projections, as well as input from the Financial Conduct Authority and Prudential Regulation Authority.
FSCS chief executive Caroline Rainbird said: “While it may be welcome news to see a lower forecast than announced in January, we do not call this a successful outcome or ‘good news’. There is still a chance that these re-forecasted failures could occur in the years ahead. We also appreciate the levy, even at this updated forecast of £833m, is too high and the cost could put pressure on firms’ finances.
“We are doing all that we can to help reduce the levy and are delaying calling for the retail pool to avoid invoicing for more than we need and to help spread the costs. Ultimately, to deliver a sustainable reduction in the levy over time, all stakeholders, including the industry, need to work together to tackle the root causes of the problem, to help drive better outcomes for consumers and a reduction in the levy.”
In today’s announcement, FSCS also said there are a number of self-invested personal pension operator claims that it now expects to be paid in 2021/22, rather than in 2020/21. “These factors have led to a surplus for the 2020/21 financial year, which has been used to offset the previously forecasted £1.04bn levy,” it said.
As a number of classes are likely to see more claims than they can be invoiced for in a year, the £833m levy is expected to include £116m for the retail pool.
This is a separate pot that other FCA classes are required to contribute to if they have not reached their maximum levy limit, and another class has exceeded its own limit.
FSCS said it will continue to monitor likely failures and defer invoicing the £116m retail pool until a later point in the year, when the required amount is more certain.
“We will update on the likely invoicing date for the retail pool as soon as we can, and will give the industry 30 days’ notice before invoices will be issued,” it said.
