The Financial Services Compensation Scheme (FSCS) has seen claims values against life and pension advisers rocket 138% in 2015/16, despite overall claims payouts falling 17%.
The FSCS, which is funded by the industry to compensate clients of failed regulated firms, paid out £83.8m in claims brought against pension advisers in the last year, up from £35.2m in the year before.
At the same time, claims related to investment advice dropped 58%, from £183.1m to £77.1m paid out to investors.
The FSCS said more firms were defaulting in relation to advice on self-invested personal pensions (SIPP) where the money was transferred to be invested in high-risk, non-standard assets.
It said the value of claims about SIPPs was up by a third, returning about £38,600 to the average investor, compared with £29,500 in the previous year.
The FSCS received 3,948 new claims about pension advice in the year, down from 4,442 in the year before. It made decisions on 4,294 cases, with an uphold rate of 60% – up from 42.99% in 2014-15.
The report said: “While the volume of claims fell in 2015/16, the complexity and cost of claims rose. This is apparent in the experience of claims for bad advice on investments held in SIPPs and also claims under general insurance employers’ liability policies.
“FSCS continued to see high volumes of SIPP-related claims, involving advice given by financial advisers to invest in SIPPs and to hold within these SIPPs, investments in high-risk, non-standard asset classes, which have often become illiquid.
“This trend began in 2014/15, but continued during 2015/16, with claims against an increasing population of failed adviser firms. Over the year, FSCS paid compensation of just under £77m.
“FSCS’s experience of SIPP-related claims against advisers is consistent with alerts previously published by the Financial Conduct Authority in connection with the conduct of some firms involved in advising on pensions.”
Investment advice payouts were of lower value than their pension counterparts – on average £6,833 was paid out on investments compared with £34,254 for pension advice.
The FSCS said it had continued to see high numbers of claims in relation to advice to invest in non-standard asset classes, including unregulated collective investment schemes.
Additionally it had received more claims concerning advice to participate in tax avoidance schemes linked to film partnerships and environmental plans, it said.
It said: “Although a relatively modest category of claim – with around 250 claims seen to date – the claims do present complex legal issues relating to the liability of financial advisers and quantification of losses. Decisions issued in the year found claims ineligible for compensation, but further claims remain outstanding.”
Overall, the FSCS paid out a total of £271m in the last year, down from £327m in 2014/15.
It received 46,896 new claims in the 12 month period, 13% fewer than the 53,662 received in the previous year.
The FSCS said the decrease in claims volumes was caused by fewer firms defaulting in the year. Between 1 April 2015 and 14 March 2016, FSCS declared 125 firms in default compared with 193 in 2014-15.
Management expenses of the body were also down 8%, from £71.5m to £66m, the body’s annual accounts show.
In the year the FSCS paid out about £7,800 on average to investors – compared with about £8,900 last year.
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