UK FSCS expects to pay £592m in compensation in 2023/24
The UK Financial Services Compensation Scheme (FSCS) today published its latest Outlook and confirmed its total annual levy forecast for 2022/23. It also provided an early indication of the 2023/24 levy.
The total levy for the 2022/23 financial year remains as previously forecast at £625 million. No additional levy is expected for the remainder of the current financial year.
To help the industry prepare for the year ahead, in this Outlook, FSCS published its first look at the levy forecast for 2023/24, which is £478 million. This indicative levy is lower than 2022/23, primarily due to surpluses that are expected to be carried over. This includes:
- £91m in the Investment Provision class, mainly due to self-invested personal pension (SIPP) operator claims now expected in 2023/24; and
- £86m in the Life Distribution and Investment Intermediation class, mainly due to processing fewer complex pension claims than expected.
At the end of this financial year, across all classes, any surpluses will be carried forward and used to offset the 2023/24 levy.
FSCS expects to pay £592 million in compensation in 2023/24. The total compensation for 2022/23 is now expected to be around £517 million. Claims against firms that have already failed account for most of the 2023/24 forecast – approximately 80% of the total anticipated compensation costs. The remaining 20% accounts for compensation against firms expected to fail during 2023/24.
Compensation is expected to remain relatively high for several reasons, including:
- a continued trend of complex claims in areas such as pension advice and general insurance; and
- a lag between harm occurring and FSCS receiving claims. Approximately 80% of people who need to bring claims to FSCS did not realise they had been given unsuitable advice until at least five years after the event.