Aifa has pledged to mount a legal challenge against the FSCS if it fails to prove it is acting within its jurisdiction in paying old pension review claims that would be thrown out under general law.
Compensation claims are more than double FSCS forecasts, with firms which were authorised by the PIA facing a predicted doubling of the levy from £25m in 2006/07 to £45m-50m over the next two years.
The FSCS says claims have rocketed as the combined weight of endowment misselling and pension review complaints have pushed many firms into default. This means that claims which were previously rejected because the firms were not in default have had to be reopened.
The Financial Services Compensation Scheme’s half-year report shows it has paid out 400 claims compared with forecasts in January of just 350 for the entire year.
It expects to pay 860 claims by the end of the financial year, with each payout worth on average £24,600.
The levy hike will affect levy block A16, created by the PIA for the pension review where 85 per cent of the liability is taken on by providers and 15 per cent by advisers.
The news comes as a shock after the FSCS claimed it would consign the pension review to history by the end of the year. It has prompted Aifa to consult its lawyers, which have written to the FSCS asking it to prove it is lawfully paying compensation for old claims.
Aifa believes that many of these pension review complaints are beyond the jurisdiction of the FSCS because the Limitation Act under general law renders complaints invalid 15 years after the advice was given. It also questions how the FSCS can revisit pension review claims from insolvent companies when the firms had already dealt with the review when solvent.
Cummings says: “The FSCS needs to prove it is not acting beyond its jurisdiction or we will mount a legal challenge. We are consulting our lawyers. This news has a potentially devastating impact on many IFAs who can never shake off their liability.”
An FSCS spokeswoman says: “We will not respond until we receive a formal approach. It is important to remember that these are predictions which are subject to change.
Split-cap levy on the way, p3