The FSCS has cited the growing number of claims relating to defined benefit (DB) pension transfers as the main reason for the lifeboat scheme's levy for this year being a fifth higher than it forecast in January.
Confirming the final total this morning, the Financial Services Compensation Scheme (FSCS) said it would levy firms £407m for 2018/19 - £71m more than it forecast in its Plan and Budget at the start of the year. This includes management expenses of £72.7m and compares with a total levy of £363m in 2017/18.
The lion's share of the increase - £52m - relates to the life and pension intermediaries funding class, with the FSCS pointing to the rise in DB pension transfer claims and noting £10m had been set aside to pay for claims against "a number of independent financial advisers". One of these firms, it added, was Active Wealth, which advised British Steel workers, among others, to transfer their DB pension schemes into self-invested personal pensions (SIPPs).
The FSCS explained the maximum levy of £75m would now be raised on life and pension advisers and the balance - now forecast to be £64m - would fall on other industry sectors. The amount and timing of any supplementary levy will be confirmed during the year.
The FSCS has also increased the levy on the investment provision funding class by £18m - which it said came "almost entirely" from claims against SIPP operators - and on home finance intermediaries by £5m.
In contrast, the investment intermediation sector will see a decrease of £4m in its indicative levy announced earlier this year. According to the FSCS, this is mainly because of recoveries, which have served to offset an increase in compensation payments for claims expected against Beaufort Securities.
'Increasingly complex choices'
FSCS chief executive Mark Neale, who flagged a likely rise in the levy in March, said: "The levies announced today provide for the steady increase in claims and compensation costs related to retirement saving. Risks rise as people make increasingly complex choices about the investment of their pension pots, even where investors take the sensible step of taking independent professional advice."
He added: "Many claims reflect bad advice to transfer pension savings from occupational schemes into self-invested personal pensions - usually with a view to investing in illiquid and risky unregulated products.
"Claims for such advice fall on life and pension advisers. As last year, however, we expect compensation costs falling to this sector in 2018/19 will exceed the class limit and result in a call on other industry sectors in the retail pool."
A full explanation of the 2018/19 annual levy can be found in the latest edition of the FSCS's Outlook newsletter.
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