This is a five per cent increase on last year’s budget which the FSCS attributed to a rise in complex claims with higher processing costs.
It said it expected complex claims to account for 43 per cent of cases this year, a 26 per cent uptick on 2021/2022.
This has been caused by claims made by customers who were given poor advice to move their pensions into unsuitable investments. The FSCS said these claims cost them more to process due to longer handling times, as well as the need for specialist staff to assess and calculate the compensation.
The FSCS said its forecasted management expenses for 2021/2022 now stood at £85.3m, a £5.2m reduction against the budget announced in January last year. It said the £5.2m surplus would be used to reduce the 2022/2023 levy and factored into its next outlook update in spring.
It said the reduction was larger due to fewer firms failing and therefore fewer claims coming through. However, it said these failures may occur in 2022/2023 and beyond instead.
Caroline Rainbird, chief executive of FSCS, said: “Our management expenses, though dwarfed by the costs of the compensation we pay, are inextricably linked to the annual FSCS levy.
“Although we have the right team and systems in place to efficiently process claims and make recoveries, it is important to be aware that the sheer complexity of claims means that we are likely to continue seeing increases in claims processing costs over the coming years as well as potential increases in the amount of compensation needed.”
Rainbird welcomed the Financial Conduct Authority’s (FCA) review of the compensation framework as part of its plans to reduce the levy imposed on firms by 2030. She also urged industry members to put forward their views.
Last year, the regulator published a discussion paper to consult on how to make the levy fairer, so firms paid for their own failures.
She added: “We understand the difficulties within this and getting the balance between consumer and industry responsibility will be an important and critical challenge to face into collectively.
“We want to see a compensation framework in place that is fair for the industry but allows us to put as many people back on track as possible when this is needed. We are thinking hard about how to tackle these matters and will continue to focus our intelligence and analysis capabilities to that end.”
