The Financial Conduct Authority (FCA) has confirmed that the compensation limit for claims to the Financial Ombudsman Service (FOS) will increase to £375,000 from 1st April. This cap will apply to all complaints made from this date about acts or omissions by firms on or after 1st April 2019. Complaints after 1st April 2022 for acts or omissions by firms before 1st April 2019 will be subject to a compensation cap of £170,000.
The FOS award limit, which is currently £350,000, is the maximum the body can require a firm to pay out when it upholds a complaint about pension mis-selling or any other matter. The last time the FCA increased the FOS award limit was on 1st April 2019, when it more than doubled from £150,000 to the current £350,000.
Could increase push more firms away from specific markets?
As long ago as October 2018, when it first proposed an increase to £350,000, the FCA acknowledged that increasing FOS award limits could mean some firms could stop providing certain types of advice, particularly around defined benefit (DB) pension transfers. The primary reason was that higher potential liabilities would see the price of firms’ professional indemnity insurance rocketing. This particular scenario came true, as we recently reported, and has now left the FCA actively monitoring the availability of DB pension advice.
As such, it remains to be seen whether the upcoming increase will see even more firms exit the DB pension advice market and what action the FCA may take to ensure the availability of advice remains adequate across the industry.