Overall cost to the financial services industry of FSCS-awarded compensation in the 2005-6 year should be lower, but it will be significantly higher for some contribution groups the scheme warns in its latest budget forecast.
These increases are linked to expectations of rising claims from areas such as split capital investment trusts, and precipice bonds, which will offset falling claims related to the Pensions Review.
Volatility in the number of claims is most likely to come from the areas of investments and general insurance intermediaries.
Published in full for the first time, the Plan and Budget for 2005/6 says the scheme estimates it will pay out £255m through the year compared with an estimate for the current year of £223.6m.
The levy will drop to £202.9m from £218.2m in the 2004/5 year.
Contribution groups set to do better include general insurance – the levy is expected to drop by £40m – with the levy associated with pensions review set to fall by £32.1m.
Fund managers, investment brokers holding client money, and those not holding client money, will see the levy increase by £26.9m, £8.8m and £4.6m respectively.
However, the levy estimates come with the warning they could change before the levy is fixed in March because the sums depend on the nature and value of claims received before then – and these could change. The actual levy could be higher or lower, the FSCS says.
The number of new claims is expected to keep rising, the scheme’s Plan and Budget adds, up 53% to 20,500 from 13,400 in the current year.
While endowments and precipice bonds will account for their share of the increase, it is the category “others, including splits” that will see a massive jump of some 8,800 new claims expected. Currently the estimate for the number of “claims in hand” for this category on 1 April 2005 is estimated at just 700.
Overall new claims related to investments are estimated to rise by 19,400. The number of new pensions review claims is expected to fall considerably to just 100.
New claims on mortgage and general insurance firms will go from zero to 1,000, the FSCS says.
A reserve contingency of £5.6m will be put aside within the Management Expenses Levy Limit to cover the costs of prospective claims that the scheme sees as “not yet sufficiently likely to warrant providing for in the central budget.”IFAonline
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