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Surge in endowment and precipice redress

Compensation for mortgage endowment and precipice bond misselling increased threefold last year, according to the Financial Services Compensation Scheme’s annual report.

Compensation paid on the misselling of personal pensions fell by 25 per cent to just under 47m, with the Pensions Review drawing to a close.

But investment claims handled by the scheme in 2004/05 increased by 256 per cent on the previous year, largely due to mortgage endowments and precipice bond misselling. The amount of compensation paid for these claims rose by 293 per cent to just under 15m.

Last year, 286 firms were declared in default, bringing the total number of firms in default since December 1, 2001 to 652.

FSCS chief executive Lore-tta Minghella says that despite increasing permanent staff numbers by 41 per cent in 2004/05, it has often struggled to keep on top of the workload and is now reviewing its structure to handle claims quickly and effectively while keeping costs down for those that fund the scheme.

The sharp rise in investment claims, coupled with the withdrawal of subsidies by prov-iders, was also blamed for the dramatic increase in FSCS levies for 2005/06 paid by IFAs.

New Life Financial Planning principal John Burnard says: “It is inevitable that we have to bear some of the burden but I think the FSA and other trade bodies have been guilty of encouraging people to make complaints, some of which have been vexatious.”

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