How safe is my pension fund?

Confuseddotcom_2

Thanks for the reply.

So the only real exposure is through excessive cash balances (which are going to be unlikely for a pension fund) or if underlying Funds go under. Thats really helpful.

''If fund provider goes bankrupt, protected up to 48k per fund provider.(eg Barclays capital for ETFs)''

Are EFTs funds then? I thought these were more like shares?
E.g. EFT tracking the FTSE100.

Thanks

MikeJones_2

Hi Ian,

ianian99 wrote: »

my pension fund is as safe as a box of cash in a hole in the ground could be.

The devil's advocate in me had to reply to this (more tongue in cheek than anything - but you get the drift - hope you see the point).

If by safe, you mean there's 'no risk' then there's no such thing as 'no risk'> For example:

Is the box metal (i.e. can it rust and the rust destroy/damage your pension fund)?

Is the box watertight (i.e. can water seep in and destroy/damage your pension fund)?

Was the box airtight when you sealed it (i.e. what if any mould was in the box when you shut it)?

Who is guarding the box (i.e. have you buried the box where some land developer could come along and dig it up in complete innocence)?

Who knows about your box and where it is (i.e. if you die will your dependents know where to go and how to find your pension)?

Did you make a map (i.e. what if you forget where the box is buried, who did you tell and are they trustworthy)?

What happens if you become ill (will someone automatically know where to go and pay you your pension fund if needed)?

Did someone advise you to bury the box (e.g. if you sought advice, you may be protected and receive compensation if anything goes wrong with your pension fund)?

Summary
Just a little bit of humour (but with some degree of truth) on what is actually a very important subject (the degree of risk we are prepared to take with our pension).

Mike

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.

jamesd

There are three main parts to the risk:

1. Risk of the pension provider going bust. You're extremely well protected against this by trust or insurance arrangements.
2. Risk of the providers of the investments going bust in the case of collective investments (but not shares). It's possible that some types of counterparty risk might be covered by insurance.
3. Investment performance risk, including counterparty risk. Not generally covered by protection of any sort. By soon to be bankrupt bank shares, lose all your money is entirely possible with no compensation payable.

Confuseddotcom wrote: »

Cash

Would normally be added to your other deposits with whatever bank holds the cash. Check with your pension provider to find out.

Confuseddotcom wrote: »

ETFs

The ETF would undoubtedly be held in a trustee account and safe from failure of the pension provider. For the fund companies, that 48k applies if they go bust.

There may be counterparty risk. Depends on the ETF. Some ETFs hold actual shares and those are as safe as other ways of holding shares. Others use derivatives to track the market and in this case you have counterparty risk that the company that sold the ETF the tracking part may go bust and fail to honour its obligations. So check how each ETF you're considering works.

Confuseddotcom wrote: »

Shares

Would undoubtedly be in a trustee arrangement of some sort and safe from failure of the pension provider.

Confuseddotcom wrote: »

Funds

As shares for the pension provider. For the fund companies, that 48k applies if they go bust.

Confuseddotcom wrote: »

Etc.

Depends on what the etc. is. Commercial property is different from share options, which would have counterparty risk.