UK FSCS compensation, and my pension

[MisterA]

Hi all,

So in the UK we are protected against banking or financial institutions failing, up to a value of £85k per bank. I guess we all know this, and mostly take this into account on our day to day requirements.

But, what about pension investments? Your employers scheme will only use a single financial institute, and it's likely that if you have a SIPP as well, you probably only have one. That's predominantly my situation, anyway. In theory, both are very strong stable institutions, but my cover is limited to £85k in each place. There are multiples of this in each place!

I'm just interested in how others feel about this, and if you mitigate it in any way?

Incidentally, I FIREd 12 months ago (or took early retirement if you see it that way), and haven't really looked back. Whilst there are challenges, it's better than going to work every day!

[daverobev]

FSCS doesn't cover investments anyway, it only covers cash.

If a brokerage goes down, your assets should be in a ring fenced account and another company will just buy your account, assets et al as part of the bankruptcy.

[MisterA]

FSCS doesn't cover investments anyway, it only covers cash.

If a brokerage goes down, your assets should be in a ring fenced account and another company will just buy your account, assets et al as part of the bankruptcy.

Thanks!

Good answer, which has reassured me (a bit).

[Affable Bear]

Hi MisterA, congratualtions on early retirement!

There is also the Pension Protection Fund (PPF) that covers DB pensions too. Always a risk of a fraudulant company/investment firm although incredibaly rare I would imagine, I always assume the big players are safe but every now and then there is a Woodford fund scandal etc..

Provided Scottish Widows and Vanguard are legit I should be ok!!

[PhilB]

There's a big difference between banks and SIPP providers.  You lend your money to the bank and they then lend it out to other people.  If enough of the people they lend to go bust, then the bank can't repay you.  That's where you need the govt to step in.

With a SIPP or other DC pension, they take your money, use it to buy the investments you ask them to, and then lock them up as securely as possible.  The only risk is that someone manages to steal them and they put a LOT of effort into making sure that doesn't happen - I've audited a few in the past.

I'm happy to have almost all my investments with a single (large, reputable) provider. 

[MisterA]

Thanks again everyone.

In the recessed of my mind I do know these things, but my mind plays tricks on me. You have to figure these things out for yourself, and be so careful. It makes me laugh when I make any invest choice, and have to tick a box that says they haven't given me any help or advice.

A number of years ago, we sold our house and moved into a rental for a few months between selling and buying a new place. We split our equity between the 2 banks with the highest interest rates, ICICI and Icesave banks. We successfully withdrew the money and completed our next purchase a couple of months before Icesave bank collapsed. Whilst the money was protected, it would have taken forever and have been a nightmare for us, we were lucky.

[sea_saw]

FSCS doesn't cover investments anyway, it only covers cash.

Purely in the interests of accuracy, just wanted to say this isn't quite right. See https://www.fscs.org.uk/what-we-cover/investments/

There's a bit of a discussion of it here https://monevator.com/investor-compensation-scheme/ and here https://ukpersonal.finance/fscs-protection-for-investments/ - both written by interested amateurs so buyer beware. The nuances are a lot more fiddly then cash that's for sure, but you do have some FSCS protections as a retail investor.

[daverobev]

FSCS doesn't cover investments anyway, it only covers cash.

Purely in the interests of accuracy, just wanted to say this isn't quite right. See https://www.fscs.org.uk/what-we-cover/investments/

There's a bit of a discussion of it here https://monevator.com/investor-compensation-scheme/ and here https://ukpersonal.finance/fscs-protection-for-investments/ - both written by interested amateurs so buyer beware. The nuances are a lot more fiddly then cash that's for sure, but you do have some FSCS protections as a retail investor.

Interesting, the ukpf page links through to https://monevator.com/maximising-fscs-protection-for-your-investment-portfolio/ which says

Offshore funds aren’t covered by FSCS compensation. Neither are ETFs or Investment Trusts.

In practice this means there’s no FSCS protection for a broad swathe of funds marketed to UK investors, because they’re either the wrong type or they’re domiciled in exotic, far-off lands like… Ireland.

but then does list a few UK domiciled funds which would qualify.

[sea_saw]

To the best of my understanding that's referring to protection/compensation if the fund itself breaks down, which is separate to the broker.