How safe is my pension fund?

project500

I remember the 70s. But I don't think the whiz kids that have engineered this mess and slunk off with their bonuses do. The markets have become allot more sophisticated since the 70s and there is allot of recycled insured debt that has been blown up in to a massive bubble that no one knows how bad the fallout will be from the unwind when asset values drop.The 70s were totally different this is far worse.

oldsalt_3

I found this thread when searching to find out how safe my pension fund was.

I have a money draw down scheme set up with Skandia, part of Old Mutual.When Jim Sutcliffe resigned I started to wonder how safe this might be.

It is currently all held in cash with them rather than invested, as the market fell substantially during the period the scheme was being set up and has been falling/volatile ever since.

Is this covered by this 90% scheme? If not should I split it up between several firms to get each down to a protected sum? Doing so would probably cost me around 3-5% of the fund in fees, so that isn't an attractive proposition.

dunstonh

I have been following up the FSCS protection on pensions as you get different answers depending on whom you speak to at the insurance companies, FSCS and pensions advisory service.

Some say its insurance. Some say its investments. In each case you can tell the individual is not totally convinced themselves. It has moved on up to a higher level now so I should get a more definitive answer soon. I am beginning to believe that a number of insurance companies are going to have to re-write their key features documents.

It's looking increasingly likely that the situation is as follows:

Pensions prior to commencement or in an unsecured personal pension (drawdown) get the investments protection scheme. Pensions that have commenced and bought an annuity get the insurance protection scheme.

However, I will update further when I get more information.

MikeJones_2

Compensation comes under the FSCS which is an independent body. The FSCS was created under the Financial Services and Markets Act 2000 (FSMA).

Part VI of the Act refers to the FSCS.

As pension products grow ever more sophisticated and complicated, what is payable is complex and would depend upon the circumstances of the failure.

Furthermore, the Act only applies where the failed company's liabilities cannot be transferred to another insurer/product provider. In which case the Insurance Company Winding Up Regulations 1985 would also come into play.

As dunstonh cleverly describes it, a pension is simply a 'container' - within which accumulates a fund to provide benefits for retirement planning purposes. What investments are held in the container might depend upon the product chosen (PPP, GPP, SIPP, SASS etc). So, there could be different situations that occur, if for example, the 'container' (product provider) fails or one or more 'investments' held within the container fails - depending upon what those investment were.

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

EdInvestor

dunstonh wrote: »

I have been following up the FSCS protection on pensions as you get different answers depending on whom you speak to at the insurance companies, FSCS and pensions advisory service.

Well done, I was going to start trying to do this myself, glad to hear you are following up.

I am beginning to believe that a number of insurance companies are going to have to re-write their key features documents.

I suspect the insurance aspect applies (and also to endowments) when the pension in invested in With Profits - but only to the guaranteed part of the policy. This issue emerged during the Equitable Life case repeatedly and there was never any suggestion the the full pension guarantee did not apply to money in the WP fund (but not to TBs).

Pensions prior to commencement or in an unsecured personal pension (drawdown) get the investments protection scheme. Pensions that have commenced and bought an annuity get the insurance protection scheme.

This makes sense for anything unit linked.But IMHO the investment limit is too low, should be 100k at least.

dunstonh

This will make you laugh.

I have had feedback, incluidng in writing in one case, from a few insurance companies now who have all referred it to their legal teams and in one case their senior solicitor and all agree that the insurance FSCS protection would apply to stakeholder and personal pensions. Not investments. SIPPs would be classed as investments as they are not insured contracts.

It was pointed out by one that the FSCS website also refers to endowments as investments which is also incorrect.

One of the individuals I spoke with said that the interpretations on some of these things is vague and contains a lot of legal speak and has never been put to the test and there are certain bits which could be open to interpretation. However, pensions are an insured contract. They are even referred to as insured contracts (hence the protected rights not being allowed in SIPPs issue - until recently).

So, I went back to the FSCS and they initially told me the information i wrote in post #14. I told them what I was being told and that I now have it in writing from the insurers. So, he went away, checked and came back and agreed with the insurers that in most cases they would be treated as insurance contracts not investments and the website is perhaps misleading. There are occassions they could be treated as investments though (drawdown being the most likely).

So, the answer appears to be, personal pensions and stakeholders are under insurance contracts and SIPPs are investments.

The way the FSCS is used came up in the conversation as well and it was suggested that the limits are largely irrelevent because the Govt isnt using the FSCS in the way it was meant to be and decision on FSCS payments are being made by the Govt without consultation to the FSCS (e.g. Bradford & Bingley).

EdInvestor

dunstonh wrote: »

There are occassions they could be treated as investments though (drawdown being the most likely).

Can't see the logic of that if you are talking about insured drawdown (ie using a PP rather than a SIPP offering direct investments.) How is it different from an accumulating PP?

It remains hard to see why there should be any difference in protection between a PP provided by an insurer but invested in external funds and a SIPP. A PP invested in an insurer's WP fund is a different matter.

The way the FSCS is used came up in the conversation as well and it was suggested that the limits are largely irrelevent because the Govt isnt using the FSCS in the way it was meant to be and decision on FSCS payments are being made by the Govt without consultation to the FSCS (e.g. Bradford & Bingley).

Indeed so, they are clearly making it up as they go along.

TRUSt_NO_1_2

fact_hunt wrote: »

Hello, I have the opportunity to join a group personal pension plan (GPP??) with my new employer. The charges are low, or so the company IFA said (0.65% a year), and I can also transfer my old personal pension plan fund in (with Allied Dunbar).

The IFA has recommended a "Balanced managed" Fund (similar to Allied Dunbar's) because I have 20 years before retirement age (booh!)

My question is what happens if Aegon Scottish Equitable or the IFA go bust? Can I lose my pension fund before I draw my pension?

With all of this bad news about shares and investments, I am thinking that I might just as well save in a bank account because at least there is a compensation scheme!

What should I do?

The unknown variable is the future purchasing power of money.
Think Zimbabwe (or the Weimar)
In the current situation,where the rulers (the banks...not the idiots in Westminster) are creating vast amounts of 'money' at the click of a mouse,I would not touch a pension.
Keep as much of your wages available at short notice as possible.

dunstonh

Can't see the logic of that if you are talking about insured drawdown (ie using a PP rather than a SIPP offering direct investments.) How is it different from an accumulating PP?

I couldnt see it either to be honest. Insured funds are insured funds. However, I had given up the will to live at that point. I got the distinct impression the FSCS telephone support didnt know.

It remains hard to see why there should be any difference in protection between a PP provided by an insurer but invested in external funds and a SIPP. A PP invested in an insurer's WP fund is a different matter.

Logically you are correct. However, the same would apply to investment bonds and endomwents which also come under the insurance protection.

However, logic doesnt come into it. Pension funds (and life funds) can only be issued by an insurance company. Even the unit trusts offered by fund supermarkets held in a personal pension are insurance wrapped (except they are at product level and not fund level like pension funds) and held under a life assurance company (typically a subsidiary or sister company)

MikeJones_2

You might be interested in this article:

Financial Crisis: How safe are your pensions and investments? (Telegraph.co.uk)

And it appears that The Pensions Advisory Service has removed the paragraph about compensation amounts referred to earlier in this thread.

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.