Context
To coincide with the joint PRA and FCA Consultation on the FSCS management expenses levy limit for the coming financial year, FSCS Chief Executive Caroline Rainbird introduces the January 2022 FSCS Budget Update which focuses on the 2022/23 Management expenses budget and updates to the 2021/22 Management expenses budget.
Key points to note
2021/22 management expenses update
- Forecasted running costs (management expenses) for 2021/22 stand at £85.3m (£5.2m reduction against budget announced in January 2021). The expected surplus (currently £5.2m) will be used to reduce the 2022/23 levy and will be factored into the next Outlook update in the spring.
- The reduction is largely due to fewer firms failing and therefore not as many claims coming through as anticipated. However, as noted in the November 2021 Outlook, many of these firm failures may in fact occur in 2022/23 or beyond.
2022/23 management expenses budget
- Annual budget of £95.5m anticipated to be needed – a 5% increase against the budget announced last year.
- One of the key drivers behind this increase is an ongoing trend of more complex claims with higher processing costs. For the next financial year, it is expected that complex claims will account for approximately 43% of all claims decisions, an increase of 26% on 2021/22.
- Of particular note is the rising number of claims coming through from customers who were given poor advice to move their pensions into unsuitable investments.
Management expenses are inextricably linked to the annual FSCS levy. At the end of last year the FCA published its Compensation Framework Review discussion paper which outlines several questions about the current compensation framework. FSCS welcome the debate it opens around developing a fair and balanced compensation model.
Next actions
None – for information and awareness