The Financial Services Compensation Scheme (FSCS) is expecting a third consecutive year with no additional levy for advisers operating in the protection and health insurance sectors.
Those working in the mortgage broker market will also see no levy for the coming financial year.
In its latest update the regulator confirmed there would be no levy for the General Insurance Distribution Class, which includes advisers in the health and protection sectors, in the current 2024-25 financial year and it did not expect one for 2025-26 either.
This follows its similar announcement a year ago.
For 2024-25 only £500,000 is expected to be paid out in compensation for the class with around £800,000 in management expenses, leaving a surplus of approximately £4.8m to be carried forward.
“We currently expect no levy to be required for the General Insurance Distribution class in 2025-26,” the FSCS said.
“This is mainly because we are not anticipating any new firm failures within this class and we continue to see a decrease in payment protection insurance (PPI) claims.
“The expected 2024-25 class surplus of £5m will be carried forward to 2025-26 to cover the costs forecast for this class next year,” it added.
Mortgage brokers benefit
Likewise mortgage brokers in the Home Finance Intermediation class are likely to see no levy from the FSCS for another year.
There has been an increased number of claims received this year taking compensation to £500,000 but there should still be a surplus of approaching £1m to cover the coming year.
“No new firm failures are currently expected for 2025-26,” the FSCS said.
“However, we do anticipate that there will be around £300,000 in compensation payments for firm failures from previous financial years.
“Given the anticipated £1m surplus from 2024-25, this should cover forecasted costs for 2025-26 and so the Home Finance Intermediation class is currently not expected to pay an annual levy in 2025/26,” it added.
Tenet collapse
As part of its update the FSCS noted it was still working on the collapse of TenetConnect Ltd and TenetConnect Services Ltd which went into administration on 5 June 2024.
As a result it has not yet assessed if any compensation or other costs will be applicable for the industry to cover.
“We are currently investigating these firms to see if FSCS protection applies and if any compensation may be due,” the regulator said.
“Since administration, we’ve been working closely with the joint administrators to secure and organise data from Tenet.
“As this conclusion has not yet been reached, compensation costs for these firms have not been included in our latest forecasts and an update will be provided in our May 2025 Outlook.”
Life adviser levy doubles
Advisers also operating in the Life Distribution & Investment Intermediation (LDII) class face a near-doubling of their FSCS levy from £65.5m to £123.6m.
This is as the compensation paid is expected to remain similar to this year but the starting surplus of £114.5m has almost all been paid out.
“Compensation costs for this class are estimated to be £152m in 2025-26, which is £9m lower than 2024-25,” the FSCS said.
“This is mainly driven by a decrease in new SIPP advice claims as a result of fewer SIPP advice firm failures and the majority of WealthTek LLP’s Special Administration Regime payments having been paid in the 2024-25 financial year.
“This is partially offset by an increase in decisions related to general investment claims forecast for 2025/26.
“While the compensation costs remain broadly similar, the indicative levy for this class is currently £124m for 2025-26, an increase of £58m compared to 2024/25.
“This is mainly because the opening balance for 2025/26 at £14m is expected to be significantly lower than 2024/25 at £115m. This class is also expected to receive £46m in provider contributions,” the FSCS added.
Higher levy, compensation stable
Overall, the FSCS is expecting to pay £367m in compensation in 2025-26, similar to the £372m forecast for 2024-25.
However, the levy is forecast to be higher than this year at £394m as it expects lower surpluses to be taken forward, with most of the reasoning pinned to investment providers and advisers.
In total surplus balances have been reduced by £171m.
The key drivers behind the levy forecast for the next financial year include:
- A small reduction of compensation costs in 2024-25 to the LDII and General Insurance Provision classes, but significantly lower opening balances.
- A lower opening balance in the Investment Provision class, as well as increased compensation costs in relation to self-invested personal pension (SIPP) operator claims.
- An increase in claims decisions following the introduction of a new operating model in 2024-25, which will be fully embedded in the 2025-26 financial year.
Claims decisions up 18%
FSCS interim chief executive Martyn Beauchamp said the claims handling approach was improving performance and that claims complexity was increasing.
“During the first half of this financial year, we’ve increased claims decisions by 18% year-on-year and maintained our high customer satisfaction and quality scores,” Beauchamp said.
“Over two-thirds of our advice claims are now considered highly complex, doubling from one third a few years ago.
“Claims increasingly require more specialist resource, deeper investigation and more time to complete, with data-gathering challenges a key driver of claim timescales.
“We’re continually working hard to identify areas where we can optimise the time taken to complete a claim without significantly increasing costs,” he added.
