ABI warns of market distortion as FSCS guarantee extended
by Gill Montia
The Association of British Insurers (ABI) has responded to the Government’s extension of the Financial Services Compensation Scheme (FSCS) with a warning that a more generous guarantee scheme could distort the savings market.
The FSCS originally gave savers with UK banks and building societies a 100% guarantee for the first £2,000 of their savings, followed by a 90% guarantee for the next £33,000.
The Treasury is now using administrative powers to ensure that 100% of the first £35,000 of a saver’s deposit is protected, with immediate effect.
A second stage of reform is planned, whereby the Chancellor hopes to “separate savers’ money from the rest of a bank’s assets, so that savers’ money is as much protected as possible”.
It is anticipated that the £100,000 guarantee granted to Northern Rock savers when the bank was on the verge of collapse will become a benchmark.
The ABI is concerned that the reforms will draw people towards cash savings and away from investment products.
Already groups representing those who have lost their pension funds have expressed opposition to the apparent preference shown to bank and building society customers.
No doubt the Equitable Life Members’ Support Group will have views on the matter, as it continues its fight to establish the Government’s level of responsibility in its members’ losses.