The Financial Services Compensation Scheme (FSCS) has announced a £38m reduction in the total levy payable by firms for the 2025/26 financial year.

The annual levy will now total £356m, marking a decrease from £394m in the forecast the FSCS made in its November outlook.

Estimates from the FSCS have indicated that it expects to pay £332m in compensation to customers during 2025/26, a total £36m lower than previously forecast.

In 2024/25, the FSCS successfully recovered more than £56m, which was higher than initially forecast, and the scheme announced that these recoveries had directly helped to reduce the levy.

The FSCS revealed that the movement between its November forecast and the confirmed levy amount today was due to lower compensation costs now forecast in the life distribution and investment intermediation (LDII) class and the level of recoveries made. All other classes remained broadly in line with its predictions.

FSCS chief executive, Martyn Beauchamp, said: “In 2024/25 we had another strong year of recoveries, recouping more than £56m from the estates of failed firms and relevant third parties. This led to higher opening balances carried forward from 2024/25 in certain classes. These recoveries put money back into the financial services sector and to the customers who use it, helping to build trust and confidence in the sector.

“We have now fully transitioned to our new claims service operating model. We delivered a high volume of customer claim decisions last year while maintaining our strong customer satisfaction and quality scores, and our aim is to continue this combination of deep purpose and high performance through the 2025/26 financial year.”

The move to cut the levy was welcomed by investment management and financial advice trade association PIMFA, which praised the “positive progress” made in increasing recoveries to help reduce the levy burden.

Head of Public Affairs at PIMFA, Simon Harrington, added: “These recoveries not only ease the financial burden on firms that operate responsibly but also enhance consumer confidence in the framework itself.

“As we continue to engage with the FSCS, we remain committed to further reforms that move us closer to a genuine ‘polluter pays’ model that offsets the costs of failure through fines and penalties on bad actors and not those who consistently act in the best interests of their clients.”

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