How safe is money in a SIPP?

MoneySavingUser

From: http://www.moneysavingexpert.com/savings/safe-savings#fscs

• Pensions and life insurance
  Stakeholder pensions and money paid into life assurance products usually fall under the category of 'long-term insurance', meaning 90% of what's in them is protected. This is the same even if your stakeholder pension is held in 'cash funds'.
• Self-invested personal pensions (SIPPs)
  A SIPP is a completely DIY pension which gives you complete control of your pension pot, for better or worse! The protection your cash gets depends on how you decide to use it. But importantly, in general the cash is ringfenced from the SIPP provider, meaning if IT goes bust, your money is safe

• If you choose to invest in stock market funds or other investment vehicles, 100% of the first £50,000 is covered.

This seems to suggest that "cash" is protected but stocks and funds are only protected upto £50,000?

Presumable the shares/funds in a SIPP are also held in trust/by a nominee/have a custodian and are also ringfenced?

edit: thinking specifically of HL http://www.hl.co.uk/investment-services/vantage-service/how-safe-is-your-investment which mentions HL Nominees Limited

dunstonh

That article is a little out of date and not fully correct.

Stakeholder pensions and personal pensions get 100% FSCS protection

Presumable the shares/funds in a SIPP are also held in trust/by a nominee/have a custodian and are also ringfenced?

Shares do not get FSCS protection.
Unit Trust/OEICs get investment FSCS protection
Direct investment funds do not get FSCS protection
Deposits get deposit FSCS protection.
It is the underlying asset within the SIPP that matters.

As for the administrator, the assets are ringfenced in case they fail. i.e. they cant be used for the benefit of the wrap provider.

BobQ

dunstonh wrote: »

That article is a little out of date and not fully correct.

Stakeholder pensions and personal pensions get 100% FSCS protection



Shares do not get FSCS protection.
Unit Trust/OEICs get investment FSCS protection
Direct investment funds do not get FSCS protection
Deposits get deposit FSCS protection.
It is the underlying asset within the SIPP that matters.

As for the administrator, the assets are ringfenced in case they fail. i.e. they cant be used for the benefit of the wrap provider.

Does this mean that UT/OEICS in a SIPP get the FSCS protection up to £50K per UT/OEIC?

dunstonh

BobQ wrote: »

Does this mean that UT/OEICS in a SIPP get the FSCS protection up to £50K per UT/OEIC?

it is £50k per fund house. So, hold £30,000 each in two funds from the same fund house and its £50k protection in total. Not the £30k each. Hold 30k each in two funds from different fund houses and you are fine.

RickyB2000

Couple of questions on this:

1) what if the administrator spent the ring fenced money (fraud) before going bust? I assume this is almost impossible
2) if the scheme went bust would you transfer out and would they be able to charge what they liked?
3) is it advisable not to go over £50k for a fund? Go for PP if you do? What if you hold the fund in both, I assume PP holding wouldn't count towards the 50k fund house limit

jamesd

Also remember that investment losses are not normally covered by the FSCS. Buy a fund that drops 80% and you're down that 80%. Buy the fund from a fund management house that goes bust due to an 80% loss due to fraud and you are protected from the consequence of the fraud.*

dunstonh wrote: »

Deposits get deposit FSCS protection.

And if I understand correctly cash not in a deposit but in a client money account may get the investment protection instead, and the provider is supposed to say which applies. I just assume it's money for investment hence client money with that rather than deposit protection.

*Sort of. The customers of NEST are paying through ongoing charges for a case where NEST paid money to fraudsters.

ex-pat_scot

Client money is just that- the client's, not the company's.
That's the principle.
There's lots of rules around how client money must be ring-fenced from that of the company.


However it is notoriously error-prone in practice, and "co-mingling" of funds (where client money and company funds get a little mixed) often can occur - in which case there is a small risk that the money that SHOULD be ringfenced (client money) can lose that protection.


Of course, there's the risk of custodian fraud / internal control failure, but there should be full remedy against this happening in practice.


The above is fundamentally different to "Bank Deposits", which the FSCS guarantee covers as its core raison d'etre