FSCS for Investments Query

Albermarle

If the SIPP provider offers insured funds and you use them, then you get 100% FSCS protection on those.

Thanks for the answer. One more question if you don't mind .
Why are these companies , like SL, offering PPP's in the accumulation phase, but changing you to a SIPP for the drawdown phase ? What's the reason behind it ? Especially where the funds available are exactly the same .
Is it maybe because with a SIPP format you have the possibility of a cash account , that makes the drawdown easier to manage? Or is it the usual IT issues?

SonOf

Why are these companies , like SL, offering PPP's in the accumulation phase, but changing you to a SIPP for the drawdown phase ? What's the reason behind it ?

The PPPs are legacy plans that will be pulled at some point. Indeed, SL sold their legacy book to Phoenix. So, actually Phoenix own those legacy PPPs. There is an agreement to retain SL branding and Phoenix employs SL to administer them.

SL themselves retained their two platforms for new business (Standard Life elevate - mainly used by IFAs and standard Life wrap - mainly used by FAs).

Is it maybe because with a SIPP format you have the possibility of a cash account , that makes the drawdown easier to manage? Or is it the usual IT issues?

PPPs are on their way out. They are more expensive to operate than SIPPs. This is why the DIY market went into SIPPs and not PPPs. Also, insurers are moving away from having their own IT systems. SL, for example, use FNZ as the software for both of their platforms. FNZ power around 3/4 of the top platforms.

Albermarle

The PPPs are legacy plans that will be pulled at some point. Indeed, SL sold their legacy book to Phoenix. So, actually Phoenix own those legacy PPPs. There is an agreement to retain SL branding and Phoenix employs SL to administer them.

As a retail customer you can still start a new personal pension with SL/Phoenix, or as an existing customer , you can change to a new one /SIPP when you want to go into drawdown.
So they are not running it as just a legacy book, as they are still active in the retail market for pensions, ISA's etc. , which I think is unusual for a Phoenix owned company .

SonOf

Albermarle wrote: »

As a retail customer you can still start a new personal pension with SL/Phoenix, or as an existing customer , you can change to a new one /SIPP when you want to go into drawdown.
So they are not running it as just a legacy book, as they are still active in the retail market for pensions, ISA's etc. , which I think is unusual for a Phoenix owned company .

Some bits of Phoenix did continue to offer new business for varying periods and there appears to be some.
The SL/Phoenix deal was a bit different to those that have gone before. SL ended up with a near 20% shareholding in Phoenix.

Businesses that are open to new business calculate capital requirements differently to those that are closed for new business.

Early indications, from articles and comments available online indicates they are segmenting into a legacy book (heritage as it is sometimes also referred to) and an open book and platforms. Only time will tell if they move the old SL Active pension/SIPP to legacy. it started life as an advice product but, in my opionion, it really serves no purpose on the advice side now as the SL platforms offer more and are better value. If it finds success on the DIY side then they will make decisions as they see fit.

As a side note, SL actually have three platforms (not two as I previously mentioned) as they own Parmenion as well. They also have an FA business called 1825 that has been snapping up IFA firms and converting them to FA under the 1825 brand.

Stu_Pen_Does

My thanks to SonOf and Albermarle for their replies to my earlier query. My IFA has responded to my direct query and clarified that indeed my SIPP is covered up to £85k, not 100%.
I have been assured, though, that the cover for the SIPP and ISA is separate, even though they are managed on the same platform.

I am aware that FSCS protection has nothing to do with negative returns during any ‘correction’, and I am looking to both change the balance (decrease the exposure to stocks) of my investments and ensure that all of them have as much protection as is possible.

My understanding, now, is that if a fund management company or a platform were to lose business during a downturn, and could not meet its own liabilities, then any administrators would potentially have access to client money in order to pay winding up costs. It would take a significant fraud to lose more client assets than winding up costs. Therefore, criminal activity aside, the likelihood of losing all my investments is vanishingly low.
I understood your point that if I invested in an UK Equity Fund when BHS failed, that would not be covered, though, presumably, if the Equity Fund manager failed, then cover might be relevant.

The net result is that I feel slightly uncomfortable to be highly overexposed to the investment platform, as they are a low margin business that has to invest in their platform to grow. However the chances of losing all my investments under their care are remote, even if a (small) proportion might be at risk if they were wound up. I just need to work out if the cost and effort of moving many investments is worthwhile. It’s like buying an insurance policy, is the risk worth the expense of cover?

Thanks again for your useful info

head_over_heels

Stu_Pen_Does wrote: »

The net result is that I feel slightly uncomfortable to be highly overexposed to the investment platform, as they are a low margin business that has to invest in their platform to grow.

You're right that many platforms are low-margin businesses, if they make a profit at all. But not all! Have you considered Hargreaves Lansdown, with reassuringly high margins of about 2/3 of their revenue? Or AJ Bell, with solid though less impressive margins of about 1/3 of their revenue?

You say you are using an advisor, and Hargreaves are unfortunately only a D2C platform, not an advisor platform. However, AJ Bell are both; AJ Bell Investcentre is their advisor platform.

Notepad_Phil

Stu_Pen_Does wrote: »

I have been assured, though, that the cover for the SIPP and ISA is separate, even though they are managed on the same platform.

Are there any readers of this forum out there who can 100% confirm this?

I always presumed that the £85000 was per platform and that amount would have to cover your SIPP, ISA and simple Investment Account if you held them all on the one platform.

Linton

Stu_Pen_Does wrote: »

....
My understanding, now, is that if a fund management company or a platform were to lose business during a downturn, and could not meet its own liabilities, then any administrators would potentially have access to client money in order to pay winding up costs. It would take a significant fraud to lose more client assets than winding up costs. Therefore, criminal activity aside, the likelihood of losing all my investments is vanishingly low.
.....

If a fund manager failed, and fund managers have failed in the past, then by far the most likely result would be that the fund would be taken over by another fund manager and things, at least for a while, would carry on unchanged. Client money would not be in danger.


The only case I believe where client money has been at at risk from the winding up costs was where the platform had sold its customers some dubious and not easily tradable investments. Under these circumstances no other fund manager would want to take over the funds and the liquidators could incur significant costs, eg legal costs, in trying to recover the client money. None of this could happen if you invest in mainstream funds holding standard market-traded shares and bonds.


So in my view provided you invest sensibly the risk is vanishingly low, much lower than those risks you take every day as part of normal life.

bowlhead99

Notepad_Phil wrote: »

Are there any readers of this forum out there who can 100% confirm this?

I always presumed that the £85000 was per platform and that amount would have to cover your SIPP, ISA and simple Investment Account if you held them all on the one platform.

As a SIPP is essentially a trust arrangement with a pension trustee, it can perhaps depend on what goes wrong. The assets inside the trust looked after by the pension trustee (who might be a separate special-purpose subsidiary of the scheme administrator) should be ring fenced in behalf of your pension and can't be touched by their own business or any creditor of the trustee or administrator, but if something goes wrong and you lose out as a result, and they go out of business so can't compensate you - or you lose assets as a result of their default - you'd generally have an FSCS compensation route available to you because the scheme administrator/trustee should be regulated.

Separately, the investment assets held in your ISA or general investment account or SIPP will be held on behalf of you or your SIPP by a custodian. Again that entity is holding the assets for you and not as part of its own assets. In the event of its default or maladministration where it goes out of business, you could claim.

So feasibly it could be true that if it all goes titsup you could claim off the investment platform / custodian for losing your assets (restricted to £85k in total for you as an individual) and then perhaps separately claim off the SIPP trustee for putting your assets into a failed custodial/ platform arrangement. FSCS would cover both angles, so your pension assets have a claim and your individual assets could have a claim. That's my assumption anyway.

If you have large amounts of cash on platform, that will be held in a bank and if the bank fails you get FSCS depositary protection on that (but the banks involved could overlap with those that have personal cash account holdings elsewhere, so the full £85k may not be available).

If you are aiming for a retirement pot producing say 4% a year of drawdowns while largely preserving the capital, and it needs to get you £20k a year of cash to live on, you might be expected to have £500k with your investment platform(s). For people who are not using 100% insured pension funds, they will be over the protection limit on that sort of pot whether the practical limit is £85k or £85k+£85k, even if they are able to split their assets effectively with a spouse or partner. It's one reason I haven't dug further into whether I'm right on the £85+£85k question for holding both SIPP and non-SIPP.

So, there are clearly going to be a lot of people who don't have full FSCS coverage on their investments, and it can be costly and a hassle to run lots of £85k separate pots with loads of different providers to maximise the coverage, especially if the chance of an un-protected loss is - on the face of it - pretty low, as Linton and others outline.

If your money is outside a pension (or you have started drawing the pension) and you have a potential need for liquidity in the near future, it would make sense to diversify across more than one platform to guard against the disruption risk of a platform failure making it difficult to access the assets. But that is more about protecting yourself against potential admin hassle and liquidity crunch rather than an actual FSCS-claimed loss.