The Financial Services Compensation Scheme “does not have 20/20 vision”, says chief executive Mark Neale as he justifies a £20m interim levy for advisers for Sipp misselling claims.
Today the FSCS announced life and pensions intermediaries will be hit with the interim levy, which it said was down to an increase in claims relating to advice to transfer pensions into Sipps.
Last month, the FSCS said it will start paying compensation for losses in the value of investments held in Sipps, as part of claims about advice to transfer into Sipps, which advisers branded unfair.
In a blog on the FSCS’s website today, Neale says the cost of compensating claimants for the loss of their investments is the primary driver of the £20m levy.
He says: “I fully recognise that demands for money outside the annual levy cycle are never easy for firms.
“We do not have 20/20 vision. We do not always have sight of firm failures in the year ahead when we set the levy.
“We cannot always predict the volume and size of claims arising from failures we do know about. And there can always be new legal or regulatory developments with implications for FSCS’ judgement about the eligibility of claims and the quantification of losses.”
Neale says the volume of Sipp claims carries “cautionary lessons” for the Government’s pension reforms being introduced in April.
He says: “The people we are compensating now were not reckless or happy-go-lucky. They simply wanted to make modest retirement savings go further and got very bad advice about how to achieve that.
“There will be many more people from April who also want to maximise the income generated by their retirement savings. It is critically important that these people receive guidance not only about the options open to them, but also about FSCS protection of the different products they might choose.
“That is why FSCS is working closely with the providers of the Pension Wise service to ensure people understand FSCS protection.”