In an FSCS budget update today Martyn Beauchamp, FSCS interim chief executive, said complex claims and enquiries now made up the "majority" of the FSCS’s workload.

The move will lead to “extra costs” in the future, he warned, although this year the lid is being kept on rising costs.

In its latest budget forecast out today the FSCS expects staff costs to rise by nearly 21% from £32.2m this year to £38.9m in 2024/25.

The FSCS has seen a rapid rise in the past 12 months in complex SIPP, BSPS and investment cases which can involve large compensation bills and many months of investigation.

In December alone the FSCS declared six advice and pension firms in default, with an additional two firms under investigation.

Some 40 financial advice firms hit by BSPS claims have so far failed with a further seven under investigation by the FSCS, latest FSCS data shows. 

Mr Beauchamp said: “Complex claims and enquiries now make up the majority of FSCS’s work. To ensure we’re best positioned to handle these claims, we’ve made a strategic decision to increase our in-house expertise going forward. This transition is a key focus for us and will mean additional costs during 2024/25.

“We’ve partially offset the costs of this work through savings across the business, by carefully prioritising and making efficiencies where possible. Overall, this has meant a forecast rise in our management expenses of 3%, which is below the level of inflation.

“We expect to pay a significant amount in compensation during the next year, helping our customers get back on track as soon as possible and directly contributing to public confidence in the UK financial services industry.”

In its budget update today the FSCS said its 2024/25 proposed management expenses budget was forecast to be £103.1m, up 3% on the previous year. Despite a £3m rise from the previous forecast the FSCS said the total levy for 2024/25, which includes both FSCS’s management expenses and estimated compensation payments, remains as forecast in its November’s Outlook.

The actual cost could be higher but the FSCS said it had kept costs under control and was not planning to use unlevied reserves.

The FSCS Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) are consulting with the industry on an overall 2024/25 Management Expenses Levy Limit of a higher amount of £108.1m. This includes a core budget of £103.1m and an unlevied reserve of £5m. This reserve, £5m less than proposed in January 2023, has now returned to its pre-pandemic levels, the FSCS said. In the previous three financial years, the reserve was higher due to elevated levels of uncertainty around firm failure, the body said.

A management expenses update for the current  2023/24 year was also published today with the forecast for the current year of £99.7m, about £0.2m less than expected when the FSCS first announced the budget in January 2023.

The FSCS said it would publish a levy update in the Spring.