The Financial Services Compensation Scheme confirmed today that its levy for 2020/21 will soar by £87m to £635m, mainly due to surging SIPP claims.

It will also have to impose a supplementary levy of £50m on advisers and providers for the 2019/20 year, higher than the £47m it warned in December, to pay for an increase in claims.

SIPP and pensions advice claims have risen strongly and the FSCS is concerned these will rise further.

It is also concerned about the rise of 'phoenixing' where failed firms are relaunched under a different name.

Since September 2019, the FSCS has spotted 136 cases of potential phoenixing. Its claim handlers have picked up 19 potential cases which were passed to the FCA. A further 117 separate cases were also referred to the FCA. Seven firms withdrew applications for registration after the FCA "discussed concerns" with them following assistance from the FSCS. 

In its 2020/21 plan published today it expects an indicative levy of £635m - up £87m from the year before - plus management expenses of £78.2m, also up.

The FCSC said: “The overall increase is due to a rise in SIPP operator claims, which is consistent with the trend FSCS has seen in recent years. FSCS expects the investment provider class to reach its annual limit as a result of these latest levy predictions, which will trigger the retail pool.”

Increasingly SIPP claims are being shifted from the life and pensions class to the investment firms class as many claims are investment-related.

The FSCS said: “The overall increase is due to increasing SIPP operator claims, which continues the rising trend of pension-related cases, and the investment provider class is forecast to reach its annual limit, which will trigger the retail pool for these costs. We will keep this under review and provide an update during the year.”

The compensation body said that claims in relation to SIPP operators are “the biggest growth area” and the reason for the increase in the overall levy.

It added: “These are claims where the conduct of the SIPP operators FSCS has declared in default gives rise to a civil liability to the investors because the SIPP operators failed to exercise reasonable care and skill, breached regulatory requirements and/or breached trustee duties."

“There have now been nine SIPP operator failures since January 2018 and the expected annual cost for 2020/21 is £209m. Prior to 2018 there had been no such failures. GPC SIPP Ltd and Berkeley Burke SIPP Administration Ltd have entered administration recently and there is a chance of more claims in this area. We now expect to make 7,700 decisions on these claims in 2020/21, which is a 114% increase on 2019/20.”

The present year saw the consolidation of Life and Pensions Intermediation and Investment Intermediation into one class. In this class the FSCS saw an increase in decisions during 2019/20 due to claims against Beaufort Securities Ltd, the largest default within this class.

Caroline Rainbird said: "FSCS expects to face a number of challenges in the coming year including continuing vulnerability of customers, a higher number of firm failures and a growing number of complex claims. I am confident that FSCS's Plan and Budget for 2020/21 provides FSCS with the resources and strength it will need to meet these demands in the interests of all our stakeholders."

The Plan and Budget 2020/21 is available on the FSCS website.

The FSCS will confirm the final levy in April 2020. The FSCS has compensated more than 4.5m people and has paid out more than £26bn since 2001.