The Financial Services Compensation Scheme (FSCS) has lowered its annual levy expectation for 2025/26 to £356m.

The cut leaves the predicted levy £36m lower than the lifeboat forecast in November.

The levy payable by firms in the life distribution and investment intermediation class, of which most regulated financial advice firms are a member, will drop from £123.6m to £87.3m.

The FSCS attributed the decline in the levy to the successful recovery of over £56m from the estates of failed firms and relevant third parties.

It said that decreased compensation in relation to the life distribution and investment intermediation class also contributed to the drop, with fewer claims now expected.

The FSCS added that the uphold rate on defined benefit transfer claims was also expected to be around 30% lower than previously forecast.

In its May outlook the FSCS said that despite the drop in the levy it still has to deal with a lot more complex claims, with two thirds of advice-related claims now considered highly complex.

Martyn Beauchamp, chief executive of the FSCS, said: “We continue to adjust to the large share of our claims that are considered complex and, as such, require more specialist resource, deeper investigation and typically more time.

“Over two thirds of our advice claims are now considered highly complex, up from one third a few years ago.

“We continue to develop the partnership between our people and our technology to improve customer outcomes. The use of machine learning and natural language processing to ingest large volumes of data, alongside the recruitment and development of data specialists to lead this work, is one example of this partnership.”

The FSCS added that it is now receiving claims against TenetConnect Ltd and TenetConnect Services Ltd which went into administration on 5 June 2024, but that any expected compensation is included in its latest forecast.

All regulated firms will be sent an annual levy invoice this summer, with the largest levy-paying firms already being invoiced earlier this year. For those who have already paid their 2025/26 levy, any overpayment will be deducted from their annual levy invoice.

The compensation lifeboat is currently preparing its five-year strategy to 2031 and will share the details of this later this year.

The FSCS will also produce its Annual Report with its final figures in the summer.