Budget Update Jan 2022

2022/23 management expenses budget

• The proposed budget for 2022/23 is £95.5m which represents a £5m (5%) increase on the budget that was announced in January 2021. It includes:
  
  • a £3.4m increase in volume-related costs – i.e. all costs associated with investigating and assessing claims.
  • a £1.5m increase in controllable costs - this includes rent and costs associated with our critical business support functions such as HR and IT. 
• The reasons for these increases include:
  
  • an ongoing trend in increasing numbers of complex claims that require additional time, resource and skilled expertise to process, e.g. for pensions and investment advice. 
  • in 2022/23, we expect complex claims to account for approximately 43% of all decisions. This is an increase of 26% on 2021/22.
• Given an anticipated rise in volume and complexity driven costs, we have made strategic choices to reduce our controllable costs and ensure the increase is kept below 3%. After adjusting for inflation at 3%, our controllable costs are in fact lower than our 2021/22 management expenses budget.
• To ensure we have the funds in place to process a significant increase in unexpected firm failures, we propose an unlevied reserve of £15m (which is the same amount included in the 2021/22 budget announced in January 2021). This gives us the flexibility needed to handle any unexpected rise in claims, especially given the current economic climate.
• The PRA and FCA are consulting on an overall MELL of £110.5m. This takes into account a budget of £95.5m and an unlevied reserve of £15m. Please note, we do not intend to use these contingency funds (£15m), hence they are not invoiced for until deemed necessary.
• Table 1 (pdf 0.1MB) shows our management expenses budget for 2022/23, broken down according to type of costs (category), compared to the 2021/22 budget announced in January 2021.
• Table 2 (pdf 0.1MB) shows our management expenses split by PRA and FCA classes for 2022/23.  Information on when the invoices will be sent to firms can be found in our November 2021 Outlook. (See ‘Payment on account’ section towards the end of the webpage).

2021/22 management expenses update

• We expect to end this financial year £5.2m below budget in comparison with our 2021/22 budget announced in January 2021. This is because:
  
  • fewer firm failures occurred and therefore fewer claims came through than expected. As result, costs associated with processing customer claims were 16% lower than expected.
  • we now expect to make around 14,500 fewer claims decisions than originally announced. Most of these relate to claims we had anticipated receiving for the General Insurance Distribution and Investment Provision classes.
• We do not expect to utilise the unlevied reserve (£15m).
• Any surplus (currently £5.2m) will be used to help offset the levy for the relevant classes in 2022/23 and will be factored into our spring levy update.
• It is important to note, however, despite the fact we have seen fewer claims, we have seen an increase in the proportion of claims that are more complex and therefore, costlier to process. This includes claims where customers may have been given unsuitable advice to transfer out of a defined benefit pension scheme.
• Table 3 (pdf (0.1MB) shows our latest management expenses update for 2021/22 compared to the budget announced in January 2021.

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