FSCS for pensions ?

C_Mababejive

Would i be right in saying that the FSCS compensation level for investments ie £50k i believe, also applies to holdings in SIPPs or with pension investment companies such as Royal London,Aviva,,etc ?

dunstonh

No, not quite.

Personal pensions and stakeholder pensions investing in insured funds or where the contract is insured get 100% FSCS protection with no upper limit (some caveats apply).

SIPPs investing in regulated investments get £50k per fund house (increasing to £85k next year).

SIPPs investing in unregulated investments get no FSCS protection.

The SIPP itself, should that fail, gets £50k. However, it's really the asset that matters rather than the administrator. A failed administrator would almost certainly be picked up on the cheap by another provider as a way of getting assets under management cheaply. Whereas the assets are the problem area. Hence why you should avoid unregulated and/or illiquid investments.

You mention Aviva and Royal London. Royal London offers personal pensions, stakeholder pensions and S226 retirement annuity contracts. All of theirs get 100% FSCS protection with no upper limit. Aviva offer SIPPs, personal pensions, stakeholder pensions, S32 buy out bonds and S226 retirement annuity contract. The bulk of their legacy plans will have 100% FSCS protection with no upper limit. Their SIPP offers some internal insured funds and they get 100% FSCS protection despite it being a SIPP.

There are some caveats and quirks that can apply. And some areas of doubt and uncertainty where opinions on FSCS cover will vary between providers.

MK62

What happens for funds like

Fidelity Life Funds - Fidelity Blackrock World ex-UK Pension Fund
Fidelity Life Funds - Fidelity River and Mercantile UK Smaller Companies Fund - Class 8
Standard Life Janus Henderson European Growth Pension Fund S4
http://webfund6.financialexpress.net/clients/standardlife/FundFactsheet.aspx?type=retail&code=KX63
Standard Life SLI Global Smaller Companies Pension Fund S4
http://webfund6.financialexpress.net/clients/standardlife/FundFactsheet.aspx?type=retail&code=0NFB

etc........, where one fund house invests in another fund house's fund (possibly through a reinsurance contract)?
Such funds can, AFAIK, only be held in a pension with the relevant providers (ie Fidelity for the first two, and Standard Life for the second pair)

How about an unfettered "fund of funds" through a platform like HL/iWEB/CSD etc, something like Premier Multi Asset Distribution Fund, where you have the platform, which holds your investment in the Premier Fund, which in turn holds investments from other fund houses (Franklin Templeton, Schroder, Fidelity, TB Evenlode, SLI to name just the top 5)?

dunstonh

External insured funds are an area where there doesnt appear to be consistent agreement and the FSCS wont answer the question unless that particular scenario comes to light and they are forced to look at it.

Some providers claim 100% FSCS protection if they fail but the lower limit of £50k if the external fund house fails. Some claim you still get 100% regardless as its an insured fund and falls under insurance. The FSCS itself contradicts what it says.

Unfettered fund of funds are easier to understand as they are nearly all operated in unit trust/OEIC form and therefore not insured funds. So, the £50k limit applies. Any failure of a sub-fund within the fund of funds would be a loss in the same way a shares failure would be.

Providers have sought legal advice in coming up with how they think the FSCS would deal with these scenarios. However, legal opinion and reality, in the end, are not always the same thing. As I have said before, everyone thought SCARPS were covered under the FSCS. Including the FSCS and FCA. However, it was only when the failures happened that the mechanics were looked at and decided that they didn't get FSCS protection. This is how it generally works.

HappyHarry

MK62 wrote: »

What happens for funds like

Fidelity Life Funds - Fidelity Blackrock World ex-UK Pension Fund
Fidelity Life Funds - Fidelity River and Mercantile UK Smaller Companies Fund - Class 8
Standard Life Janus Henderson European Growth Pension Fund S4
http://webfund6.financialexpress.net/clients/standardlife/FundFactsheet.aspx?type=retail&code=KX63
Standard Life SLI Global Smaller Companies Pension Fund S4
http://webfund6.financialexpress.net/clients/standardlife/FundFactsheet.aspx?type=retail&code=0NFB

etc........, where one fund house invests in another fund house's fund (possibly through a reinsurance contract)?
Such funds can, AFAIK, only be held in a pension with the relevant providers (ie Fidelity for the first two, and Standard Life for the second pair)

Those are all insured funds so 100% FSCS protection.

(edit: see dunstonh's post above for a lot more detail/accuracy)

MK62 wrote: »

How about an unfettered "fund of funds" through a platform like HL/iWEB/CSD etc, something like Premier Multi Asset Distribution Fund, where you have the platform, which holds your investment in the Premier Fund, which in turn holds investments from other fund houses (Franklin Templeton, Schroder, Fidelity, TB Evenlode, SLI to name just the top 5)?

Those would tend to be OEICs, so the £50,000 (soon to be £85,000) limit would apply to the Fund of funds, NOT the underlying funds.

In reality, the FSCS is never likely to have to pay out for any of these. Unlike bank deposits, these investments are ring-fenced.
The ability for a provider to fraudulently dip into the fund for a few hundred million, without being noticed by the trustees (who check, value and report on the contents on a daily basis) is minimal.

Fund providers have gone into administration before. See New Star and Gartmore for two well known names. The ring-fenced client funds were secure, and the administrators simply sold the client assets to other companies. In the case of Gartmore, many of the fund management teams moved with their funds to Henderson.

MK62

Thanks Harry......pretty much as I thought for the insured funds (no harm in getting a second opinion though...)

I'm a bit surprised at the fund of funds though.....maybe I'm misunderstanding, but are you saying only the Premier fund is covered, and if any of the underlying funds/fund houses were to go under (very unlikely I know), they wouldn't be covered?

If so, that would be interesting.......if an investor had money invested in, for example, Frankin UK Eq Income and Premier Multi Asset Distribution, and Franklin Templeton went under, then the money invested directly in Frankin UK Eq Income would be covered, but the money invested indirectly in the same fund, through investing directly in Premier Multi Asset Distribution, would not......


Hopefully it's all hypothetical though......


PS......for total clarity, I only used Franklin Templeton as an example...AFAIK, there is nothing to suggest any problems there whatsoever....

HappyHarry

MK62 wrote: »

Thanks Harry......pretty much as I thought for the insured funds (no harm in getting a second opinion though...)

I'm a bit surprised at the fund of funds though.....maybe I'm misunderstanding, but are you saying only the Premier fund is covered, and if any of the underlying funds/fund houses were to go under (very unlikely I know), they wouldn't be covered?

If so, that would be interesting.......if an investor had money invested in, for example, Frankin UK Eq Income and Premier Multi Asset Distribution, and Franklin Templeton went under, then the money invested directly in Frankin UK Eq Income would be covered, but the money invested indirectly in the same fund, through investing directly in Premier Multi Asset Distribution, would not......


Hopefully it's all hypothetical though......


PS......for total clarity, I only used Franklin Templeton as an example...AFAIK, there is nothing to suggest any problems there whatsoever....

You are correct. In this case, you are not holding the FT fund, Premier is. You are holding units in the Premier fund.

Realistically though, if FT go under, your assets are still ring-fenced, and still exist.

Malthusian

dunstonh wrote: »

As I have said before, everyone thought SCARPS were covered under the FSCS. Including the FSCS and FCA.

They thought what?

Exactly who thought bank loan notes (with a weird coupon) were covered by the FSCS? Are they the same "everyone" geniuses who think that LC&F and Castle Trust and litigation funding is covered by the FSCS?

If it's structured deposits we're talking about then they definitely are (still are) covered by the FSCS, but SCARPs?

dunstonh

If it's structured deposits we're talking about then they definitely are (still are) covered by the FSCS, but SCARPs?

Structured deposits are but SCARPs are not.

I just had a look at several KFDs from early/mid 2000s and they say covered by FSCS or as one put it "it is possible that you have a claim against the FSCS". Talk about hedging your bets!

Santander and Credit Suisse were two high profile fines in relation to SCARPS and they both had to write to all people who held them offering the ability to get out of the investment before the end of the term. There were quite a lot of threads on here at the time.

Norwich & Peterborough was quite a profitable one for IFAs. They had an FSA instigated review on all SCARP sales (and a range of others) and paid £500 to IFAs for giving advice. We made thousands out of that. B&B were heavy in scarp sales and a lot of theirs were Lehman backed and failed. The FSCS paid out on those as they were done under advice.

MK62

dunstonh wrote: »

External insured funds are an area where there doesnt appear to be consistent agreement and the FSCS wont answer the question unless that particular scenario comes to light and they are forced to look at it.

Some providers claim 100% FSCS protection if they fail but the lower limit of £50k if the external fund house fails. Some claim you still get 100% regardless as its an insured fund and falls under insurance. The FSCS itself contradicts what it says.

Unfettered fund of funds are easier to understand as they are nearly all operated in unit trust/OEIC form and therefore not insured funds. So, the £50k limit applies. Any failure of a sub-fund within the fund of funds would be a loss in the same way a shares failure would be.

Providers have sought legal advice in coming up with how they think the FSCS would deal with these scenarios. However, legal opinion and reality, in the end, are not always the same thing. As I have said before, everyone thought SCARPS were covered under the FSCS. Including the FSCS and FCA. However, it was only when the failures happened that the mechanics were looked at and decided that they didn't get FSCS protection. This is how it generally works.

Thanks dunstonh, must have missed your reply earlier.

TBH, it doesn't inspire confidence in the financial industry, if the compensation scheme, which is there to protect investors, either won't tell you (or doesn't know), in some cases if you are actually covered at all, and if you are, to what level, unless/until you lose your money....then they'll decide - you really couldn't make it up!
It's no surprise that many people are so mistrusting of it!

AlanP_2

MK62 wrote: »

Thanks dunstonh, must have missed your reply earlier.

TBH, it doesn't inspire confidence in the financial industry, if the compensation scheme, which is there to protect investors, either won't tell you (or doesn't know), in some cases if you are actually covered at all, and if you are, to what level, unless/until you lose your money....then they'll decide - you really couldn't make it up!
It's no surprise that many people are so mistrusting of it!

Not an ideal situation but not that unusual in wider context either.

Take some of the Equal Pay cases and similar that have gone through over the last 5 years or so.

For years organisations, HR professionals, lawyers etc. thought that was being done was correct base don their interpretation of the rules (even if only on the balance of probabilities), and its only when it gets tested in a court of law that these things are clarified.

Watch out in 12-24 months when the first flood of GDPR related claims / cases go through the system, no doubt current interpretation of some of the detailed guidance will clarify what they mean in the "real world".