In a blog published on the FSCS website on Wednesday morning, chief executive Mark Neale said there is “little logic” to current rules which stop the scheme paying out more than £50,000 to victims of mis-selling when their advisers go bankrupt.
Under the current system, retirement savings in insurance products are fully protected by the FSCS, which means it will pay out the full amount invested if the insurer who holds the product goes out of business.
In contrast, if an advisory business goes bust then each client can only claim up to £50,000 on the basis that they can prove they were mis-sold an investment product.
“This is confusing for consumers and corrodes confidence. And it leaves consumers with retirement pots in excess of £50,000 in a quandary because it makes no sense to break the pot up for the purposes of seeking advice,” wrote Neale.
He called on the Financial Conduct Authority (FCA) to reconsider the limit as part of its review into FSCS funding.
Neale made the comments in response to data from the FSCS, published in July, which showed that payouts to UK consumers, aggrieved by poor life and pensions advice, have more than doubled due to an increase in high risk self-invested personal pension (Sipp) investment claims.
“Instances of bad advice are few and far between, but when they do occur they can have a devastating impact on retirement savings which take a lifetime to build up.
“We see that now with Sipp-related claims arising from advice to transfer retirement savings into a Sipp and then to invest in illiquid and risky assets,” he explained.