Following the positive news on the FSCS levy reduction announced earlier this year, the FSCS has confirmed that no further levy is expected in 2022/23, and it expects the overall levy next year to reduce by a further 20%. This is largely down to the ‘inherent lag in the system’ for compensation payouts making it difficult to predict when claims will fall, as around 80% of consumers who are entitled to claim don’t realise they were given unsuitable advice until five years or more after the fact.

The FSCS uses a ‘pay as you go’ model, so rather than store surpluses to offset possible future claims, these are carried over and used to reduce current fees instead. For mortgage intermediaries this is especially good news, given the levy can be reduced to zero in both 2022/23 and 2023/24 by carrying forward surpluses (though the latter may change in next May’s Outlook). For those who advise on protection, the levy for firms in the Life Distribution and Investment Intermediation (LDII) class will remain as forecast earlier this year, whilst 2023/24 forecasts indicate that next year’s levy will more than halve (to £105.5m from £213.1m).

In respect of these decreases, the messaging from the FSCS remains the same as before – i.e., while positive, firms shouldn’t take this news to signify a permanent reduction in the FSCS levy, as the situation is being assessed on an ongoing basis and is liable to change. Notably, current figures do not account for the potential cost of compensating customers of firms that are expected to fail due to poor British Steel Pension Scheme (BSPS) advice.