A decision by the FCA to raise the limit on Financial Ombudsman Service compensation claim awards to £350,000 has been branded “shocking” and “counterproductive”.

Last week’s confirmation, that FOS will soon be able to require financial services firms to pay £200,000 more compensation to consumers and businesses, was attacked by Royal London’s Steve Webb.

From 1 April, the current £150,000 limit will more than double to £350,000 for complaints about actions by firms on or after that date. 

For complaints about actions before 1 April that are referred to FOS after that date, the limit will rise to £160,000.

Mr Webb said the change was evidence of FCA failings and would lead to damaging effects on insurance premiums.

He said: “The FCA has been forced to admit that it got its numbers wrong and that just 500 people a year might benefit from this change.  

“But the risk is that the insurance which advisers are obliged to buy will more than double in price and could drive up to a thousand firms out of the pension transfer advice market altogether. 

“There is already clear evidence that PI insurers have been hiking premiums in anticipation of this policy change. 

“Yet the FCA is pressing on regardless. 

“This is a shocking decision. 

“If far more members of the public are unable to access advice then this will be counterproductive and consumers will lose out as a result.”

But Huntswood managing director Steve Kitchen said the rise was a wake-up call for firms.

“Today’s announcement from the FCA demonstrates the importance of financial services firms revisiting their complaints operating models, ultimately ensuring complaints are resolved in a timely and compliant manner and to the customers satisfaction,” he said.

On Friday the FCA also confirmed that award limits will be automatically adjusted every year to ensure they keep pace with inflation.

The new award limit will come into force at the same time as the extension of the service to larger small and medium-sized enterprises (SMEs).

These are firms with fewer than 50 employees, annual turnover of under £6.5m and an annual balance sheet total of under £5m.

An additional 210,000 SMEs will be able to complain to the Financial Ombudsman Service.

Andrew Bailey, chief executive of the FCA, said: “Consumers and small businesses struggle with the cost and time needed to take firms to court, so it is essential they can receive fair compensation from the Financial Ombudsman Service when things go wrong.

“We have listened carefully to the feedback we have received and believe our approach is right and will bring benefits to both the consumers and micro-enterprises currently eligible for the ombudsman service and the small businesses who will become eligible in April.”