In its half-year update published on Thursday, the lifeboat fund said it expected to pay out just over £136m (€159m, $169m) to claims relating to poor Sipp advice in 2016/17 - up 39% from the original £98m the FSCS earmarked earlier this year.
As a result, the FSCS reported a £28m deficit in the life and pension advice section.
The watchdog’s chief executive Mark Neale said the shortfall may be funded by introducing an interim charge on advisers in January.
Neale said the levy is needed to deal with “a more rapid growth” in Sipp advice claims.
“These are claims against advisers, which result from bad advice to move retirement funds out of occupational pension schemes and into Sipps and then to invest in high risk, unregulated investments within the Sipp,” he said.
The FSCS revealed it received claims about Sipp advice against 171 advice firms in total, with just four of these firms accounting for 73% of all the claims it expected to pay out.
According to the organisation, the majority of claims are about advice to invest in non-standard asset classes through a Sipp.
“Some of the non-standard investments seen with these claims included hotel rooms in Caribbean holiday resorts, storage pods and plantations of oil producing trees in Asia,” it said.
It comes as data from the FSCS, published in July, showed that payouts to UK consumers, aggrieved by poor life and pensions advice, have more than doubled due to an increase in high risk Sipp investment claims.
David White, partner at The QROPS Bureau, said the number of complaints relating to Sipps has risen sharply since the introduction of pension freedoms in April last year, giving people the flexibility to withdraw up to 100% of their pension fund from age 55.
“One of the problems is that people are being encouraged to transfer out of defined benefit occupational pension schemes (which don't offer pensions freedoms but in general offer very good benefits in other ways) to Sipps,” he told International Adviser.
White added that although this can be “good advice” in the right circumstances, a “small number of scrupulous advisers” are pushing clients to invest in “unsuitable high risk investments” which often lead to clients losing money and increased complaint to the FSCS.