The professional body says the levy on all retail funds would be relatively ‘negligible’ and harm few investors but raise substantial sums.

The organisation urged a new approach to FSCS funding, looking “at a more broadly-based solution, combining fair and cost-effective levies with a public financial education programme - in the form of a savings and investment monetary protection and education levy.”

In calling for reform PFS chief executive, Keith Richards, branded the current situation “reshuffling of the FSCS levy deckchairs.”

Mr Richards said: “Well intentioned as it is, the FSCS was designed at a different point in time and has built up an unknown level of legacy liability over many years.

“It is increasingly proving unfit for purpose and the growing concern over DB transfers, plus a hardening PII market, will compound the level of liability placed upon it, which will result in poor outcomes for consumers and the market as a whole.”

He added: “The situation is being exacerbated by professional indemnity insurers beginning to withdraw cover or harden terms for regulated advisers associated with DB transfers.

“As a consequence, we are likely to see more firms moving away from advising on DB transfers, thereby restricting access to ‘freedoms’, or being forced to quit due to a lack of mandatory PII availability.”

He explained the proposed system would work by instigating “a relatively negligible seven basis points or less deduction from the total funds under management per annum.”

He added: “If adviser contributions went into the same fund to pool the risk, the current need for professional indemnity insurance would then be disposed of.

"Excesses could still apply, but over time the build-up of such a fund would almost certainly reduce contributions and help mitigate financial failure.”