The Financial Services Compensation Scheme (FSCS) has disclosed that it paid out £327 million in compensation during the 2024/25 financial year, underscoring the rising burden on the safety net designed to protect consumers when financial institutions fail.
According to its annual report, the FSCS processed nearly 12,000 claims linked to investments, pensions, and mis-sold financial advice, resulting in payouts amounting to £176 million. A further £134 million was disbursed to policyholders of collapsed insurers, while £17 million was paid to members of failed credit unions, reflecting a broad spread of exposures across the financial services sector.
The Scheme also reported it had recovered £56 million from the administrators of failed firms—revenues that are crucial in offsetting future levies imposed on the industry. Over the past two years, such recoveries have exceeded £110 million, demonstrating the increasing emphasis on reclaiming funds from insolvency estates.
Despite these pressures, FSCS maintained high satisfaction ratings among claimants, aided by new digital initiatives. A new electronic payment system for deposit customers, for instance, enabled some individuals to access protected savings within 24 hours of insolvency events.
In a parallel development, FSCS has warned that the levy imposed on general insurance distributors will rise to £1.2 million in 2025/26-up from £800,000 the previous year. The increase forms part of a wider funding package that supports the Scheme’s operations, with overall management expenses projected at £103.6 million. A further £5 million contingency fund remains in place, as in previous years.
The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are currently consulting on a proposed Management Expenses Levy Limit of £108.6 million for the upcoming financial year.
Martyn Beauchamp, chief executive of FSCS, said the Scheme had absorbed inflationary pressures through internal efficiencies and a gradual shift towards in-house claims processing. “We have invested strategically in expertise while reducing reliance on external providers, bringing costs under tighter control,” he said.
By the close of 2025/26, FSCS expects to complete its transition to a fully internalised claims-handling model—a structural change aimed at increasing responsiveness and reducing long-term administrative expenditure.
The FSCS is also considering a coverage hike, with the PRA proposing to increase the standard deposit protection limit from £85,000 to £110,000. This adjustment, due to take effect in December 2025 if ratified, reflects accumulated inflation since the threshold was last reviewed in 2017.
The move is part of a broader effort to maintain public confidence in the UK’s deposit-taking institutions amid evolving economic conditions. The PRA’s consultation also includes plans to raise the cap on temporary high balances-from property sales or insurance payouts-from £1 million to £1.4 million.
Sam Woods, Deputy Governor for Prudential Regulation and CEO of the PRA, said the proposal aims to ensure the Scheme remains “fit for purpose” in providing credible reassurance to depositors.
The FSCS has backed the move, arguing that consumer awareness of deposit protection plays a vital role in sustaining trust in financial institutions-an essential pillar of market stability. In recent years, compensation payouts have primarily related to smaller credit union defaults, though the Scheme’s remit includes all PRA-authorised deposit takers.
The convergence of rising compensation payments, increased levies, and expanded depositor protection suggests a more assertive posture by regulators, seeking to bolster resilience while maintaining affordability. However, the insurance and intermediary sectors face a delicate balancing act: funding FSCS without impairing competitiveness or access.
Firms will be watching closely as the PRA concludes its consultation later this year, particularly with the potential enactment of the Banking Resolution (Recapitalisation) Bill. This legislation would authorise the FSCS to contribute to recapitalising failing firms, enabling smoother transfers and reducing disorderly collapses-though it could carry material implications for the Scheme’s financial exposure.
