Risks associated with SIPP and pension products

pshepherd

I have SIPPs with AJBell and H-L and an ISA with TDWaterhouse (now part of II). The majority of money is invested in index tracker ETFs from iShares, Vanguard, SSGA, UBS, etc. I also have an old style personal pension plan with Old Mutual Wealth. I am still working and haven't taken any benefits.

A recent post in this forum caught my attention and started me wondering about risk from either the SIPP/ISA platform or the ETF provider failing and whether this should affect future decision making.

The FSCS site suggests you are protected up to 50k per person per firm for investments and 100% for a long term insurance policy like a pension.

I imagine there are potential risks with a sharp downturn as to whether ETF providers can sell the underlying stock (if the replicate an index) and have deep enough pockets to repay people selling their shares. Presumably unit trusts could suffer in a similar way. While I could survive an extended 10-30% market correction a more significant permanent loss due to a company failing would be difficult.

So, a few questions:

Does the FSCS 'per firm' phrase refer to the company owning the platform, the ETF provider or both? (I imagine the former)

Is the FCSC protection different if the holdings were with UK based fund providers rather than overseas ETF provider?

Are platforms like H-L (and perhaps AJBell, II) 'too big to fail' barring nuclear war, etc. and therefore the likelihood so low that it can be ignored? or is that naive (post Lehman Brothers)?

Is the main risk from the platform or with an ETF/fund provider going under?

Interested in what people think or whether there are other questions I should be asking.

paul

AlanP_2

The platform is separate from your investment assets so if HL were to "fail" their customers might have to wait whilst ANO takes over the accounts and gets everything sorted out but the investments will not be affected.

A pain, no doubt, doubly so if you want to sell / buy just at the point it all goes wrong and have to wait for a couple of months to access your new account with ANO but no "real loss".

As for the fund house they can't dip into your account to pay their normal business expenses either so the only possible situations I can foresee where there might be an issue is a massive fraud by a number of staff at the fund house only pretending to trad and pocketing investors cash; or financial Armageddon where there are no buyers at any price.

The former seems unlikley and if the latter happens I guess we will all have more important things to worry about, like where can I get fresh water, heat & light.

atush

But what would cause a big firm like that to fail?

A stock market catastrophe? In that case markets would plunge and your pension values with it. But wouldnt be due to the failing platform- would be to do with the underlying assets.

dunstonh

The FSCS site suggests you are protected up to 50k per person per firm for investments and 100% for a long term insurance policy like a pension.

The 100% FSCS protection only applies to personal pensions and stakeholder pensions (in this context). It does not apply to SIPPs. So, your Old Mutual pension would have 100% FSCS protection but the other two SIPPs would have £50k FSCS protection (at SIPP level) and then it would depend on what assets you have on the SIPP.

Does the FSCS 'per firm' phrase refer to the company owning the platform, the ETF provider or both? (I imagine the former)

ETFs get no FSCS protection whatsoever. They are not a retail consumer product. They are a direct investment (like shares).