The Financial Services Compensation Scheme (FSCS) has lowered its annual levy expectation for 2025/26 to £356m, £36m lower than its forecast in November.

The scheme now expects to pay £332m in compensation during 2025/26.

In its latest Outlook update for May 2025, the FSCS attributed the fall to the recovery of more than £56m from the estates of failed firms and relevant third parties and decreased compensation relating to the Life Distribution & Investment Intermediation (LDII) class, with fewer claims now expected.

Indeed, the levy payable by firms in the LDII class is now £87m, a £36m decrease from November’s indicative forecast.

The LDII class reported a £30m higher opening balance carried forward from 2024/25 and around £29m lower compensation costs in 2025/26.

In addition, a continued lower flow of new claims into FSCS is anticipated, with no new significant failures expected.

Broadstone head of redress, Brian Nimmo, suggested that the lowered predictions for compensation payments reflected broader trends within the redress landscape, as payouts for consumers reduced in size.

“A movement towards more claims requiring specialist investigation is also emerging, with over two-thirds of claims now considered ‘complex’ compared to one-third just a few years ago.

"It highlights the complex financial landscape that firms and consumers must navigate nowadays alongside the specialist advice that firms require to ensure they treat consumers fairly,” he added.

The levy for the general insurance provision has also decreased from £90m to £85m, which the FSCS said can be partly attributed to the class surplus being £9m higher than November’s initial forecast.

This surplus was carried forward to offset the 2025/26 levy, mainly driven by higher than anticipated 2024/25 recoveries for Enterprise Insurance Company Ltd, which failed in 2016, with £25m received throughout the year.

Meanwhile, the forecast for the investment provision has increased by £8m from £97m to £105m, including £18m as provider contributions to the LDII class.

The FSCS said the main reason for the increase was the £16m lower recoveries income for past self-invested personal pension operator failures.

However, the compensation amount remains aligned with the previous forecast at £118m.

Commenting on the updated figures, FSCS chief executive, Martyn Beauchamp, said: "We exceeded the forecast on recoveries in 2024/25, and we’re expecting fewer claims in the LDII class, with average uphold rates in this class also currently trending lower than historical averages.

"We continue to adjust to the large share of our claims that are considered complex and, as such, require more specialist resources, deeper investigation and typically more time," he added.

Beauchamp also noted that over two-thirds of the FSCS advice claims were highly complex, up from one-third a few years ago.

Looking further ahead, the chief executive said the scheme was preparing a five-year strategy for 2031.

"This presents an exciting opportunity for FSCS to bridge purpose and performance over the longer term, maintaining positive customer outcomes, maximising cost-effective recoveries, and becoming a more strategic partner to the industry that funds our work.

The next outlook will come in the autumn, featuring a half-year update and a first look at 2026/27," he concluded.

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