The Ombudsman will adopt a variable interest rate on certain awards from 2026
The Financial Ombudsman Service (FOS) has confirmed plans to overhaul the interest rate applied to certain compensation payments, replacing the long-standing flat 8% rate with a variable rate.
The new rate, which is set to come into force from 1 January 2026, will track the Bank of England’s base average rate of +1 %.
The revised rate will apply to new complaints referred to the Ombudsman from that date and is designed to more accurately reflect changing market conditions.
The move follows a consultation launched earlier this year, which came in response to stakeholder feedback and a joint call for input with the FCA.
The fixed 8% rate had not been reviewed in nearly 25 years, despite significant changes in the macroeconomic environment, including fluctuations in interest rates and inflation.
Revised rate
A statement from the FOS said the revised rate “aims to strike a balance between simplicity, fairness and proportionality” while still achieving the core goal of placing consumers back in the position they would have been in had the financial firm not made an error.
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The change is likely to impact insurers’ cost calculations for claims that escalate to the Ombudsman. However, the service has retained the right to direct firms to pay a flat 8% interest rate if compensation is delayed beyond the required timeframe, in a move intended to deter late payments.
Further implementation details and additional proposals to modernise the redress system are expected in Autumn 2025.
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