The Financial Services Compensation Scheme (FSCS) today publishes its Plan and Budget for 2020/21. The document outlines expected management costs and the latest forecast of potential claims volumes. Also outlined are initial forecasts for the levy financial services firms will pay next year, as well as a supplementary levy due to be raised on firms before the end of 2019/20.
FSCS needs to raise a supplementary levy for 2019/20, of £50m from the Life Distribution, Pensions and Investment Intermediation class. The main cause for this supplementary levy is increased claims volumes and new defaults. FSCS will also provide a refund of £30m to firms in the Deposits class. (A full breakdown is provided in the table in Notes for Editors below).
The proposed 2020/21 indicative levy is £635m, an increase of £87m from the levies raised in 2019/20. The overall increase is due to a rise in SIPP operator claims, which is consistent with the trend FSCS has seen in recent years. FSCS expects the investment provider class to reach its annual limit as a result of these latest levy predictions, which will trigger the retail pool.
The total management expenses budget (i.e. the cost of running FSCS and of paying claims) will be £78.2m, a 1.3% increase on the latest full-year forecast for 2019/20 of £77.2m, and an increase of £3.6m (4.8%) compared to the 2019/20 budget. The key drivers for this increase are the costs of core support and making recoveries.
Caroline Rainbird said: “I am delighted to introduce my first Plan and Budget as FSCS Chief Executive. The past eight months since joining FSCS have left me very impressed by its strength as an efficient and effective compensation scheme, delivering an empathetic service for consumers, many of whom are vulnerable. We are able to do this by working in partnership with the financial services industry and the regulatory family.
“As well as detailing our levies, budgets and forecasts, today’s Plan and Budget also sets out progress that has been made on our Strategy for the 2020s based on the four pillars of Prepare, Protect, Promote and Prevent.
“FSCS expects to face a number of challenges in the coming year including continuing vulnerability of customers, a higher number of firm failures and a growing number of complex claims. I am confident that FSCS’s Plan and Budget for 2020/21 provides FSCS with the resources and strength it will need to meet these demands in the interests of all our stakeholders.”