Compensation Limits Set To Increase?

The Financial Conduct Authority (FCA) is considering a change to consumer compensation limits after suggestions that insurance and investment limits should be aligned.

In a policy statement (25 April 2016) the FCA said it will look at a possible increase in the amount of compensation investment customers can claim from the Financial Services Compensation Scheme (FSCS).

Currently, those who claim for an insurance policy from a failed insurer are eligible for 90% of compensation (100% for mandatory products such as car insurance), while investment claimants face a £50,000 limit (per person, per claim).

The FCA said it wanted to look at the issue in the context of the pension reforms, which gave all direct contribution savers over the age of 55 freedom to purchase what they wanted and meant many more were opting for investment-type products. The FSCS had already said in its annual report for 2014-15 it was keen to discuss increasing the current £50,000 protection limit.

Annuities (traditional products purchased by a matured pension) are seen as long-term insurance contracts and as such qualify for 100% protection. However, adviceon the products is classed as investment advice, subjecting the claimant to the lower £50,000 investment limit.

The FCA and Prudential Regulation Authority (PRA) do not differentiate between investment claims in connection with pension related-deposits, long-term insurance contracts or investments, and similar non-pensions-related activities. For instance, a person who purchases an investment product is in the same position with regard to FSCS limits whether the investment product is held in an ISA, in a self-invested personal pension (SIPP), or a defined contribution occupational pension scheme.