Transfer expensive private pension to cheap Sipp?

dunstonh

I am not clear about the protection offered user a Sipp and the difference to that for a personal pension. As I understand it, the Sipp protection is a maximum of 50k, but the personal pension is 100% of the pension. What does the 50k refer to, the total value of the Sipp, or if the Sipp was used to Invest in a number of funds, the maximum value protected for each fund is 50k?

Personal pensions using insured funds (which is most of them but there are some PPPs that use UT/OEICs) get 100% FSCS protection with no upper limit.

Funds within a SIPP are protected upto £50k per fund house (not per fund). If you use assets with no FSCS protection (such as shares, ETFs or ITs) then you get no FSCS protection at that level.

zagfles

dunstonh wrote: »

Personal pensions using insured funds (which is most of them but there are some PPPs that use UT/OEICs) get 100% FSCS protection with no upper limit.

Funds within a SIPP are protected upto £50k per fund house (not per fund). If you use assets with no FSCS protection (such as shares, ETFs or ITs) then you get no FSCS protection at that level.

As I understand it this is mostly acedemic anyway.

Fund houses will hold the underlying equities etc in ring-fenced nominee accounts, if the fund house were to go bust the underlying equities/bonds/cash etc held would be safe.

Same for platforms. Cash held on platforms would be subject to the same protection as cash held outside if the bank were to go bust, ie max £75k across all cash deposits you have with that institution. I think most platforms spread cash amongst several banks to increase protection.

If the underlying investments go down in value, then obviously you'll lose money - but that applies equally to personal pensions and SIPPs.

This is what HL say, I'm sure others are similar:

http://www.hl.co.uk/investment-services/vantage-service/how-safe-is-your-investment

dunstonh

Fund houses will hold the underlying equities etc in ring-fenced nominee accounts, if the fund house were to go bust the underlying equities/bonds/cash etc held would be safe.

Its more if the fund itself goes bust (which can often lead to the fund house following). It is not common but occasionally one comes along. Arch Cru being a relatively high profile recent example.

If you stick to mainstream then you should reduce the chance to one that is very low. However, it does no harm to have a spread. That would happen fairly easily on a bespoke portfolio but if the intention is multi-asset funds then a spread of some of those can make sense.

zagfles

dunstonh wrote: »

Its more if the fund itself goes bust (which can often lead to the fund house following). It is not common but occasionally one comes along. Arch Cru being a relatively high profile recent example.

If you stick to mainstream then you should reduce the chance to one that is very low. However, it does no harm to have a spread. That would happen fairly easily on a bespoke portfolio but if the intention is multi-asset funds then a spread of some of those can make sense.

Never even heard of them! Googling them it seems their funds were mainly recommended by IFAs rather than chosen by DIY investors, which is probably why I've never heard of them. Don't think they were ever "marketed" by HL.

It looks like they were invested in risky illiquid investments marketed as safer than they actually were, which the financial crisis 8 years ago hit hard, and the administrators weren't valuing the investments correctly, and advisers were misselling.

But even so it seems investors got back 70% of the value, without any £50k limit. Losing 30% on a single fund value isn't too bad providing you're well diversified.

This makes interesting reading: http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06008

dharm999

dunstonh wrote: »

Personal pensions using insured funds (which is most of them but there are some PPPs that use UT/OEICs) get 100% FSCS protection with no upper limit.

Funds within a SIPP are protected upto £50k per fund house (not per fund). If you use assets with no FSCS protection (such as shares, ETFs or ITs) then you get no FSCS protection at that level.

So, if I put more than 50k in my Sipp into, say, all Vanguard funds, the excess over the 50k wouldn't be protected, if, for some reason, Vanguard went bust?

dunstonh

Never even heard of them! Googling them it seems their funds were mainly recommended by IFAs rather than chosen by DIY investors, which is probably why I've never heard of them. Don't think they were ever "marketed" by HL.

They were heavily used by DIY investors and Chartered Financial Planners. The latter can sometimes try to use more advanced things to give the impression they are better than a regular IFA. About 1000 advisers used Arch Cru. So, the ratio was low compared to over 20,000 advisers out there. They got their fingers burnt on that one! They were frequently used by DIY investors and got frequent mentions on this site.

The issue was that the fund house marketed it as very low risk. However, it didnt take much to see that it wasnt low risk. A good proportion was undisclosed private equity and that can never be low risk. As I have posts on record on this site pointing that out prior to it failing, I have had a number of people contact me asking me how I knew when their adviser didnt. I also helped several in their successful complaints. Basically, it was lack of research by their advisers and marketing that was believed by advisers/investors and not analysed as it should be. Since then, the FCA has looked much closer at due diligence and research in its review of advisers and made it clear that just because something is regulated by the FCA, does not mean it is ok.

So, if I put more than 50k in my Sipp into, say, all Vanguard funds, the excess over the 50k wouldn't be protected, if, for some reason, Vanguard went bust?

Correct. So, if you were building a bespoke portfolio of single sector funds and wanted it all trackers, you could spread it over blackrock, vanguard, L&G, HSBC etc If you wanted active passive multi-asset funds then you could use Vanguard, L&G etc.

Linton

dharm999 wrote: »

So, if I put more than 50k in my Sipp into, say, all Vanguard funds, the excess over the 50k wouldn't be protected, if, for some reason, Vanguard went bust?

Not true. If the only thing that went wrong was that the Vanguard company went bust your money should be safe regardless because, unlike money deposited with a bank, invested money isnt owned by the manager. The fund manager merely has the right to manage it. So if Vanguard went bust the money couldnt be used to pay Vanguards debts. What would happen in practice is that management of the funds would be transferred to some other company. Clearly there could be a period of time for this to be organised during which you may not have access to the money.

The £50K protection limit would apply if for example it turned out that Vanguard was the victim of a massive fraud by a group of its employees who because of the failure of the company's internal procedures were able to syphon off your money into a secret off-shore account. Whether you consider this a serious risk against which you need guaranteed protection is up to you. Personally I am prepared to take the risk and hold far more than £50K with individual fund managers.