The Personal Finance Society has written to the Chancellor to press its case for a product levy to be considered as part of the Financial Services Compensation Scheme funding review.
The professional body wrote to George Osborne this week setting out its concerns about the current “unsustainable” FSCS funding model.
PFS chief executive Keith Richards says the FCA’s review of how the FSCS is funded – which started in May – is too narrow to deliver a “fair and sustainable” solution.
He says: “We would like to engage the Treasury’s support, from a public interest perspective, to broaden the current [Financial Advice Market Review] consultation to include alternative funding options rather than more narrowly tweak the current mechanism.”
A product levy appeared to have been ruled out of scope of the funding review at the first roundtable meeting in May because it would require a change in legislation.
However, Richards argues a savings and investment premium tax, similar to the insurance premium tax imposed on general insurance products, would reduce the burden of funding the FSCS for regulated firms and their clients.
He wants to see a product levy introduced alongside industry contributions which would be capped at an annual level.
Richards says: “Consistency with insurance premium tax might also allow the Treasury to generate additional revenue from a much broader source of contributors, which could additionally be directed to improved public financial awareness and education, as well as the proposed ‘free services’ [guidance programmes such as Pension Wise and the Money Advice Service].”
Informed Choice managing director Martin Bamford says a product levy would be more transparent for consumers in understanding what they contribute to the FSCS.
He says: “The consumer pays already but they just do not see how much they pay because advisers have to pay the levy and we have to factor that levy into our fees to consumers to ensure we are profitable.
“The advantage of the product levy is that it becomes transparent how much the cost of protection is and what the cost of compensation is.”