The Financial Conduct Authority (FCA) has predicted that levies imposed on companies to compensate customers will increase over the next few years as more and more companies offering self-invested personal pensions are at risk of bankruptcy.
Self-invested personal pension providers (Sipps) allow risky assets, such as cryptocurrencies, to be kept in their packages.
Sipps’ non-standard assets have driven the growth of the Financial Services Compensation Scheme (FSCS) tax – Britain’s bailout scheme.
The overall FSCS levy has increased in nominal terms from less than £300m in 2011-12 to a projected levy of £717m in 2021-22.
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That figure is set to rise as the financial watchdog expects more of these Sipps suppliers to fail, leaving customers to turn to the compensation system to recoup their savings.
Sheldon Mills, executive director of consumer and competition at the FCA, said: “We expect [these figures] will likely increase in the years to come.”
Mills, who was testifying before the Treasury committee, added: “These businesses could still be at risk of failure, particularly in self-invested personal pensions and a few other areas.”
The financial services industry has asked the regulator to move to a risk-based tax.
The FCA has recognized that this situation needs to be resolved and it has admitted that the burden of the tax falls on the companies that have done nothing to bring about these liabilities.
The FCA director also said more could be done to see the effects of the premium in areas such as insurance and access to banking services.
“We recognize throughout our work that there are major challenges for people, a lot of people in this country.
“And with the cost of living crisis that’s about to ensue, inflation goes up, wages don’t go up as much as inflation, there’s a cost of energy, etc.
“So we recognize that some people may struggle in the years to come.”
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The poverty premium is the additional cost that people with low incomes and in poverty pay for essential goods and services
He added: ‘Before that we try to work with the banks…as they close branches just to make sure they think about people’s needs and the alternatives.’
The committee has already heard that people living in areas with higher levels of car crime could be penalized by higher insurance premiums.
Mills said: “I think we can do more to analyze it and see the effects in areas like insurance and access to banking services.
“And then working with industry to try to get a willingness to tackle some of these issues.”