Pension Fund Security

peterade

I know banks are guaranteed to £75k but what about pension savings.
I appreciate investments can fall but can the fund holder ever collapse and what would happen then?

I'm not advanced with banking/finance but this is important to me.

Thanks,

Peter

dunstonh

I know banks are guaranteed to £75k but what about pension savings.

Personal pensions and stakeholder pensions 100% guaranteed.

SIPPs are £50,000 on the investment utilised within the SIPP. (ie. 3 funds of £50k with different fund houses would all be protected. Whereas 1 fund of £150k would only get £50k protection).

However, with unit linked investments, the FSCS protection is largely pointless on mainstream options as it really only covers you for provider failure in the case of fraud. Non-mainstream, it is more important.

Exceptions to the above are advised cases which bring in further protection as the adviser could be deemed liable even on unregulated investments.

princeofpounds

Banks are very, very different to pension funds (I am not talking about defined benefit funds here, which are a different topic).


If the manager of a pension fund or the platform on which the funds are held, collapses, the funds that belong to clients are held separately to the funds of the firm.


This means that the firm never gets to actually use the client money, only direct it into particular investments.


This protection is further reinforced by the fact that the managers never actually hold the assets in the funds. This is done by custodians/depositories, which are independent third parties. If the manager asked for the assets to be transferred anywhere except back to the clients, the custodian would refuse (and probably report you to the FCA).


Furthermore, the regulatory framework around mainstream (so don't go running off to Dubai or Cayman with your pension) investment funds is very well-defined in European and UK law, with lots of transparent reporting, so it would be obvious almost immediately if anything unusual had happened.


That's why you have had pretty much zero scandals of significance in this area for a couple of decades. If something does go wrong, it's an admin headache but eventually you would be able to get to your assets , probably via them being transferred to another provider.


With banks, it is different. A deposit with a bank becomes the (temporary) property of the bank. They loan it out, and have more freedom to do unusual things with it if they want to.


The business model of a bank is also more fragile, because it only takes a modest proportion of loans going bad to bankrupt a bank and leave them owing money to creditors (this is an inevitable feature of the whole concept of banking). The main creditors of banks are of course, depositors.


Whereas a bad investment in a fund will never cause a manager to go bankrupt owing money to investors. The investors might lose money of course, but they won't be owed money the manager can't pay. Bank depositors expect 100% security of their deposits of course, whereas fund investors accept risk of loss.