The £405m the FSCS paid out in compensation during the 2017/18 financial year – up from £375m in 2016/17 – included a significant increase in pension advice-related claims.
According to the latest Financial Services Compensation Scheme (FSCS) annual report, almost a quarter (22%) of the claims handled by the lifeboat fund in its 2017/18 financial year arose from pensions advice.
The last financial year saw more than a fivefold increase in costs relating to pension transfer claims – rising from £8m in 2016/17 to £43m this year. That figure included the cost of claims made against advisers who gave negligent advice to transfer pensions out of defined benefit schemes into unsuitable assets.
Self-invested personal pension (SIPP) related claims also increased, costing the fund £112m in compensation in 2017/18 – £7m more than in 2016/17.
Rising DB transfer claims push 2018/19 FSCSlevy to £407m
The report said most of the SIPP claims typically involved advice given by financial advisers to move pension savings out of occupational pensions arrangements and into “high-risk and unsuitable” investments that went on to fail or become illequid.
In contrast, the number investment-related claims fell from 6,325 in 2016/17 to 4,933. Of the claims that were made, poor advice was again largely to blame – the FSCS said most of those claims were made against financial advisers for negligent advice to invest in unsuitable funds and other types of investment.
Overall, compensation costs rose to £445m, up some £70m from last year’s £375m figure across 69,980 customers. The FSCS said the £445m included “a net increase of £40m in the provision for future compensation payments and for the resolution of Dunfermline Building Society”.
Management expenses
Management expenses at the lifeboat fund decreased by £0.2m from the previous year and were within the set budget of £69.2m. The FSCS put this down to a reduction in project costs.
Chief executive Mark Neale said: “This rising tide of pension-related claims underlines the risks consumers face as they take advantage of the pension freedoms and, therefore, the importance of raising awareness of FSCS protection outside the field of deposits.”
The FSCS will levy £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.