A lifeboat scheme which compensates customers when financial firms go bust has slashed the total levy amount that it expects will be paid by the industry.
The Financial Services Compensation Scheme (FSCS) is able to pay compensation to customers because it is funded by the financial services industry, via a levy.
On Thursday, the FSCS published revised forecasts for 2023/24.
In its latest outlook, the FSCS said the annual levy for 2023/24 is now £270 million, which is £208 million lower than an indicative figure announced in November 2022.
The reduction is partly driven by an increased surplus from the 2022/23 levy being carried over into 2023/24, which has reduced the amount of money the FSCS now needs to raise to cover compensation costs.
The levy enables FSCS to continue to provide a trusted compensation service that helps build confidence in the financial services industry, particularly during economic and market volatility— Caroline Rainbird, FSCS
Lower volumes of pensions decisions, and large insurance payouts being delayed or settled at lower amounts were among the factors noted by the FSCS.
There has also been a £121 million overall decrease in the compensation forecast for 2023/24, but the FSCS said it still expects to pay £471 million.
The FSCS said it is continuing to see increasingly complex firm failures, for example within defined-benefit pension advice areas, which can take significant time and expertise to investigate.
Compensation relating to claims can be spread over multiple financial years, the FSCS added.
Caroline Rainbird, chief executive of FSCS, said: “The levy enables FSCS to continue to provide a trusted compensation service that helps build confidence in the financial services industry, particularly during economic and market volatility.
“Whilst the level of compensation expected this year is lower than it has been in some recent years, this is the sixth year in a row that compensation costs are close to or above £500 million.
“We will continue to closely monitor the volume and complexity of claims throughout the year and will share our next update on the levy in the autumn edition of Outlook.”
