The Financial Services Compensation Scheme (FSCS) has reduced its annual levy on the financial services sector to £356 million for 2025/26, down from an initial forecast of £394 million published in November.

The compensation scheme, which protects customers when authorised financial services firms fail, said the reduction reflected strong recoveries from failed firms and fewer expected claims in certain areas.

FSCS chief executive officer Martyn Beauchamp said the organisation had "another strong year of recoveries" in 2024/25, with surplus balances substantially reduced across all classes as they were mostly utilised to offset prior levies.

"We've had another strong year of recoveries, much of which has been added to the opening balances in the relevant classes, and some of which will be distributed back to customers through additional payments," Beauchamp said.

The scheme now expects to pay £332 million in compensation during 2025/26, reflecting two key factors: recoveries in 2024/25 exceeded forecasts, and fewer claims are expected in the Life Distribution & Investment Intermediation class, with average uphold rates also trending lower than historic averages.

FSCS processes claims when banks, investment firms, insurance companies and other financial services providers fail or stop trading. The scheme protects deposits, investments, pensions and insurance policies up to statutory limits.

Beauchamp noted that over two-thirds of advice claims are now considered highly complex, up from one third a few years ago. "We continue to develop the partnership between our people and our technology to improve customer outcomes," he said.

The organisation has implemented several operational improvements, including a new claims service operating model and an in-house customer contact centre established a year ago. In January, FSCS processed its first direct electronic payments for a deposit taker failure using a new portal, with some customers receiving their savings back within 24 hours.

The scheme said it continues to refine forecasting models to improve accuracy, though predicting compensation remains challenging due to variables including the number of firms declared in default and likely claim volumes.

FSCS is currently preparing its five-year strategy to 2031, with Beauchamp describing it as "an exciting opportunity for FSCS to bridge purpose and performance over the longer term, maintaining positive outcomes for customers, maximising cost-effective recoveries and becoming more of a strategic partner to the industry that funds our work."

The next outlook update is scheduled for autumn, featuring a half-year review and initial forecasts for 2026/27.

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