The Financial Services Compensation Scheme says its prediction that IFAs in the pensions review contribution group would stop paying levies next year was "over-optimistic" and it now anticipates a shortfall of funds in this area.
In its annual report published earlier this year, the FSCS said IFAs in the pension review contribution group would be unlikely to pay levies from next year because claims were coming to an end.
But in a report published today it says this view was over-optimistic and the contribution group will therefore face increased funding requirements in 2007/08.
The factors contributing to the projected shortfall of funds include:
- Claims have continued to arrive off the street in higher numbers than forecast;
- The average value per claim is currently £24,600 and just 40 new valid claims would increase compensation requirements by as much as £1m;
- At the time the FSCS set its levies the 12 month rolling average uphold rate was 71%, but it is now assuming a rate of 83%;
- Claims previously rejected because the firms were not in default have had to be re-opened because endowment claims have tipped rising numbers of departed firms into default; and
- When the FSCS fixed the 2006/07 levy in March 2006 it underestimated the value of claims yet to be paid.
The report says the FSCS now anticipates receiving further new claims during 2007/08 “and possibly beyond”, which means the levy raised this year is insufficient to cover claims actually received and likely to be received.
It is forecasting the total levy required over the next two years could be £45m-£50m.
Loretta Minghella, chief executive of the FSCS, says: “Forecasting is not an exact science and inevitably our actual experience can be quite different. Why? Because our forecasts are prepared and given months in advance and rely on trends at the time, which may not reflect what is happening a few months down the line.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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