Rising SIPP and DB transfer claims to force extra £69m FSCS levy

Hannah Godfrey reports...

The Financial Services Compensation Scheme (FSCS) has forecast an additional levy of £69m due to rising SIPP and defined benefit (DB) transfer claims.

In its November outlook, published on Wednesday (November 28), FSCS chief executive Mark Neale revealed the lifeboat fund expected to be in a deficit of close to £70m by the end of the year as a result of pension-related claims.

Neale (pictured) said: “Despite raising a levy on life and pensions advisers in April of £75m – the maximum allowable for nine months from June 2018 to March 2019 – we expect a deficit by year-end of just under £70m. This will, I am afraid, necessitate a supplementary levy falling on the retail pool.”

He added: “We see some common factors underlying these claims. We see consumer vulnerability as people seek to maximise their income in retirement and are persuaded to make unwise investments, usually held within a SIPP, or to trade valuable rights in DB schemes.”

Neale said the FSCS had seen “many examples” of mis-selling from both regulated and unregulated advisers, as well as directors and advisers who were involved in failure and had reinvented themselves and “come back for more” – a practice known as phoenixing.

The FSCS boss also suggested providers had failed to perform rudimentary due diligence on potentially unwise investments.

The retail sector will fund the additional levy, excluding those in the life and pensions intermediation bracket, who have already hit the maximum payable for the year. This means those advisers who do not advise on pensions will be helping to meet the cost for the life and pensions firms that have defaulted and led to claims to the FSCS.

More claims to come

According to the FSCS, SIPP and other pension transfer-related failure made up nearly half (45%) of all defaults declared this year and, of these firms going out of business, more than four-fifths (83%) have resulted in claims to the compensation scheme.

The lifeboat fund also said it expected the number of SIPP claims to continue to increase, estimating a further 1,369 claims to the value of £31m in the remaining months of this levy period.

The FSCS is monitoring developments in the sector, such as SIPP operator cases going through the courts, to see how they might impact claims, Neale added.