By Lucia Osborne-Crowley

Law360, London (July 1, 2021, 4:44 PM BST ) Britain's lifeboat fund said on Thursday that it raised its fee inflows to £600 million ($828 million) in the past 12 months to cover a surge in compensation claims connected to the COVID-19 pandemic and accounting scandals.

The Financial Services Compensation Scheme said in its annual report that both the total amount of compensation it paid out to customers and the fees it asked for from the finance sector increased in the pandemic year.

The total compensation the fund paid out rose by £57 million, to £584 million from £527 million in the 12 months to March 2021. The lifeboat fund's levy — the fees it charges firms — rose by £52 million, from £548 million to £600 million in the same period.

"I have said before that the levy is far too high, and we must take swift action with the industry and regulators to tackle the causes of the increase," said Caroline Rainbird, the fund's chief executive. "We still have a way to go to take the action needed to tackle the rising levy, as well as reducing consumer harm."

Rainbird said there were several factors that contributed to the increase in the levy, including a spike in complex pension advice claims and self-invested personal pensions claims.

The levy is paid by all regulated financial service firms to fund the compensation pot. The FSCS said that 45,227 companies paid fees into the levy in the past 12 months.

The ongoing process of compensating customers who lost out when mini-bond firm London Capital & Finance went bust also contributed, Rainbird added. The mini-bond firm collapsed in 2019 and almost 12,000 people lost £236 million.

The lifeboat fund said it received 99,528 claims for compensation in the 12 months to March. More than 52,000 resulted in either paying people compensation or helping them transfer to a new investment or insurance policy, the fund said.

The fund said it has paid out compensation linked to 1,131 failed firms, including 92 companies that failed in the past 12 months.

While its levy increased, the fund said it reduced its operating costs in the last financial year. The cost of processing claims dropped by 3% from the previous year. This was on top of the 8% reduction in like-for-like claims handling costs the year before that, the fund said.

The FSCS said it also used artificial intelligence and automation to avoid approximately £9 million in claims handling costs.

The fund announced in November that it would have to increase its projected levy by £92 million, partly due to the chaos caused by the COVID-19 outbreak.

The fund said in May that it expects its levy to surge further in the 2021-22 financial year — the 12 months to March 2022 — to £833 million. That is partly because the government's COVID-19 support loans kept some businesses afloat in 2021 that will likely collapse in 2022 when the funding schemes close, the FSCS said.

There are also a number of claims about self-invested personal pension funds, or SIPPs, that were slated to be paid in 2021 but will now be deferred to 2022, the body said.

SIPPs, which allow savers to choose investments for their retirement pots, have come under scrutiny. Politicians fear that savers are making poor investments under pension freedoms introduced in 2015 that allow them to withdraw lump sums when they reach the age of 55.

The FSCS said last month that it paid out just under £3.75 million in compensation to 88 customers who lost out when embattled wealth manager Greyfriars went bust, with most of the payments covering bad pensions transfer advice.

--Editing by Joe Millis.

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