The Financial Conduct Authority (FCA) has predicted the levies charged to companies in order to compensate customers will grow over the next years, as more firms providing self invested personal pensions risk going under.
Self-invested personal pension providers (Sipps) allow risky assets, such as cryptocurrencies, to be held in their wrappers.
Non-standard assets in Sipps has led to the growth of the Financial Services Compensation Scheme (FSCS) levy — the UK lifeboat scheme.
The overall FSCS levy has increased in nominal terms from less than £300m in 2011-12 to an expected levy of £717m in 2021-22.
This figure is set to increase as the financial watchdog expects more of these Sipps providers to fail, leaving customers to turn to the compensation scheme to get their savings back.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “We do expect [these figures] probably will increase in the coming years."
Mills, who was giving evidence to the Treasury committee added: "Those firms might still be at risk of failure, particularly in self-invested personal pensions and a few other areas."
The financial services industry has called on the regulator to move towards a risk-based levy.
The FCA has accepted this situation needs to be addressed and it has admitted the burden of the levy has fallen on firms which have done nothing to bring about these liabilities.
The FCA director also said that more could be done to see the effects of the premium in areas such as insurance and access to banking.
“We recognise throughout our work that there are major challenges for people, many people in this country.
“And with the cost of living crisis which is about to ensue, inflation is going up, wages aren’t increasing as high as inflation, there’s an energy cost etcetera.
“So we recognise that some people may struggle in the coming years.”
The poverty premium is the extra cost people on low incomes and in poverty pay for essential products and services
He added: “Ahead of that we’re trying to do work with the banks… as they close branches just to make sure that they are thinking about people’s needs and the alternatives to them.”
The committee previously heard that people living in areas with more car crime may be penalised with higher insurance premiums.
Mills said: “I think there’s more we can do to both analyse it and see the effects of it in areas like insurance and access to banking.
“And then working with industry to try and get a will to tackle some of those issues.”