The Financial Services Compensation Scheme estimates that it will need an extra £92m to fund compensation claims over the next financial year.

Outlining its position at the mid-point of the 2020/21 financial year this morning, the FSCS notes that the £92m surpasses the maximum amount it can raise from life and pensions intermediaries.

The lifeboat fund will therefore split the amount between advisers and other types of fee payers.

The FSCS will source £8m from the life distribution class, and £33m from surpluses across other classes, according to a statement this morning.

But the bulk will come from an additional £51m from what it known as the retail pool – a separate pot that all classes are required to contribute to when they have not reached their annual maximum, and is only used when one class exceeds its annual levy limit.

The FSCS said in a statement that alongside many smaller failures, such as discretionary manager Greyfriars Asset Management and Sipp provider Pointon York, the rising levy was also due to more compensation pay-outs to customers resulting from the “complex failure” of mini-bond firm London Capital and Finance.

It also noted that there has been an increase in pension advice claims more widely.

Due to the volume and complexity of LCF compensation claims, the FSCS has seen its management costs come in higher than what it budgeted for.

Overall anticipated claims volumes are 38 per cent higher than budgeted, it says, with around 10,200 more claims than had been expected due to LCF pay-outs.

In general, the FSCS has seen more complex claims, which are costlier to process.

Last month, the FSCS said that to date, it paid out more than £38.1m in compensation to LCF customers and “is continuing our work to assess the outstanding claims.”

Despite a rise in the volume of claims, the FSCS has managed to control other costs, which has resulted in like-for-like claims handling costs reducing by 8 per cent in 2019/20.

FSCS chief executive Caroline Rainbird says: “I appreciate that the supplementary levy will be unwelcome news for firms against a challenging economic backdrop, and I genuinely understand the difficulty this will cause.

“We only raise a supplementary levy when we absolutely have to, when we estimate that we will not have sufficient funds to meet rising compensation costs or management expenses for the period until the next levy is due.

“Whilst we share the industry’s concerns about rising compensation costs and increasing levies, we firmly believe there is no silver bullet and regulation alone will not solve this complex problem.

“Education of consumers plays a key role so that they are empowered to make informed financial decisions that are right for them.

“Our commitment to continuously innovate in our ways of working to keep our management costs as low as possible, making recoveries wherever we can and if cost-effective is also vitally important.

“And last but not least, collaboration and data sharing with our regulatory and industry stakeholders is crucial to help prevent future failures.

“Only by the regulators, industry and FSCS all working together effectively will we be able to address these problems, deliver better outcomes for consumers and reduce future levy bills.

“That is why we also call for the industry to help support us by calling out bad actors and scams.

“It is still too soon to know the full effects of Covid-19 on the industry, but we must all be prepared for a challenging period in 2021.

“I want to reassure everyone that FSCS is ready to handle whatever difficulties next year will bring.”