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Huge FSCS fee rise is looming as endowment claims rocket

IFAs face a massive increase in Financial Services Compensation Scheme fees due to a predicted threefold increase in endowment complaints.

In January, the FSCS forecast 7,000 endowment claims for 2005/06 but now says it exp- ects to receive 22,000 new claims in the period.

It is warning IFAs that the surge means another major increase in fees in 2006/07.

The FSCS received 10,000 new endowment claims in the first six months of the financial year 2005/6 and expects to be handling similar levels next year. Chief executive Loretta Ming- hella says: “New endowment claims have been received at unprecedented levels, way beyond our expectations.”

Advisers could have to pay an additional levy to cover this year’s shortfall although the FSCS, which is hiring new staff to cope with the increased volume, says this is unlikely as it will only happen if the shortfall exceeds 25 per cent.

Aifa director general Chris Cummings says the astronomical rise in endowment claims increases the pressure on the FSA to restructure the way that the FSCS is funded so product providers share the burden for endowment misselling.

Cummings says: “This has brought the problem of FSCS funding into sharp focus. Providers, who are still making money from these policies, have to step up to the plate.”

Pensions Transfer Solutions managing director Carl Melvin says: “It is a crazy situation and is going to drive more IFAs out of business.”

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