The £50,000 limit on FSCS protection for ‘negligent advice’ should be re-examined, the head of the FSCS says.

Mark Neale, FSCS chief executive, said the current rules failed to make sense, with retirement savings held within long-term insurance products having protection at 100% of the policy value without limit, compared with £50,000 for mis-selling.

A change would boost confidence in professional financial advice and potentially encourage more people to seek it, he believes.

He said: “There is little logic to protecting retirement savings in insurance products without limit, but to restrict protection for mis-selling to £50,000. This is confusing for consumers and corrodes confidence.

“And it leaves consumers with retirement pots in excess of £50,000 in a quandary because it makes no sense to break the pot up for the purposes of seeking advice. An adviser needs to see the full picture.”

Writing in his regular FSCS blog, he said the organisation's research last year showed trust was also a factor deterring people from seeking financial advice, not just cost.

Consumers specifically lacked confidence that they would be protected if they received bad advice, the report found.

Mr Neale said: “Instances of bad advice are few and far between, but when they do occur they can have a devastating impact on retirement savings which take a lifetime to build up.

“We see that now with SIPP-related claims arising from advice to transfer retirement savings into a SIPP and then to invest in illiquid and risky assets.

“That’s why I believe it is right to take a fresh look at the level of FSCS protection for negligent advice – currently £50,000 - as part of the current FCA review of our funding.

“I can see a sound case for harmonising retirement savings limits. This has the support of MPs with 60% supporting harmonisation according to our research.”

The FSCS said in November that the evidence suggested FSCS protection is part of the solution to promoting higher take-up of advice, not the problem. It called for the industry to do more to raise awareness of FSCS protection to overcome “the barriers of distrust”.