Cost of SIPP claims up 35% as FSCS pays out £105m

Tom Ellis writes

The Financial Services Compensation Scheme (FSCS) has repaid more than £105m in self-invested personal pension (SIPP) claims in 2016/17 – a 35% increase on the previous year.

The lifeboat fund said the increase was due to failed advice firms that transferred savers out of occupational schemes into risky SIPP investments. It paid out £105m to compensate for these losses in 2016-17, compared with £78m in 2015-16.

The FSCS said a total of 3,565 clients were “wrongly advised” to shift their retirement from occupational schemes into risky assets held within SIPPs in 2016-17.

It said: “Their riskiness means some investments inevitably fall and become illiquid. This trend began two years ago and has continued this year, with claims against an increasing number of failed life and pensions advisers.”

The FSCS levied pension advisers a bill of £90m for 2016-17 – up from an initial forecast of £80m. However, in January the FSCS announced it would impose a £36m supplementary levy due to the “high-numbers of SIPP-related claims”. It is also collecting £100m from those advisers for 2017-18 to account for the recent increase in those claims.

The scheme expects the number of SIPP-claims to fall in the current year but said it would keep the sector under review and raise a supplementary levy later in the year to cover any extra costs if needed.

In total the FSCS compensation costs rose by more than £100m in 2016-17, with pay-outs rocketing up from £270m in 2015-16 to £375m, mainly due to general insurance, which added £70m to the bill.

The FSCS received 5,118 total new life and pensions intermediation claims in 2016-17, up from 3,948 in the previous year.

The number of claims against investment advisers dropped by more than 50%, however, down to 6,325 from 16,256. Despite this, investment advice-related compensation costs went up slightly from £77m to £82m.

The FSCS said: “As in previous years, FSCS continued to see many investment intermediation claims against independent financial advisers regarding negligent advice to invest in unsuitable pooled investments. However, this year no firms have been placed into the special administration regime, which has seen large numbers of claims in recent years.”

The lifeboat fund also spent £68m on administrative expenses in 2016-17, £2m more than in the previous year. It said this was due to additional bank charges associated with the revolving credit facility, which increased from £750m to £1.1bn.

Management expenses for life and pensions intermediation remained much the same at £12.7m, while investment intermediation management expenses went up by £3m, from £18.6m in 2015-16 to £21.4m in 2016-17.