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What if pension fund goes bust?

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72 posts
Hi all,

What happens if say, I had a £500K in a new vanguard SIPP , which only uses Vanguard funds, and the company went bust? Would I only get the £85K back like banking rules as all the funds are under one company? Or are there different rules for SIPP's?
If so, is it advisable to have the £500K divided up in £85K chunks in different fund companies with a different platform?




  • JoeCrystalJoeCrystal Forumite
    2.4K posts
    Part of the Furniture 1,000 Posts
    It depends, I believe — worth asking the administrators themselves on what if.
  • SonOfSonOf Forumite
    2.6K posts
    1,000 Posts Second Anniversary
    What happens if say, I had a £500K in a new vanguard SIPP , which only uses Vanguard funds, and the company went bust?

    Your question in the subject is if the pension fund goes bust. However, your question here is if the company (assuming Vanguard) went bust. So, that is something different to your subject.

    Whilst stakeholder pensions and most personal pensions get 100% FSCS protection (with no upper limit), SIPPs get just £85,000. The former fall under the insurance FSCS protection but SIPPs fall under the investment FSCS protection.

    It is not really possible for your pension fund to go bust as you are invested in the markets of the investments. Those investments have a daily value. For the value to drop to zero, every investment (so every share and bond) would need to drop to zero. Complete and utter wipeout of every company and government in the world. (my response is specific to the type of pension you are referring to).

    Any fall in value due to failures in the companies making up your underlying assets are just a fact of life and get no FSCS protection on those. So, if you picked single company shares and they failed, then its hard luck and just reflects bad quality investing if you are too overweight in them.

    Your pension administrator can fail but they do not own the pension. So, the pension cannot be used to pay the debts of the company. So, the pension would either need to be taken over by a white knight getting the assets cheaper or the administrator would be required to put in place a company to run the pension until it can eventually be moved on commercially. If you stick to mainstream investments (i.e. direct liquid investments and liquid UT/OEICs) then the worst that can happen is that you are unable to trade or draw from the pension for a period.
    If so, is it advisable to have the £500K divided up in £85K chunks in different fund companies with a different platform?
    Only if you are going off mainstream. otherwise no.
  • AlanP_2AlanP_2 Forumite
    2.4K posts
    Part of the Furniture 1,000 Posts Name Dropper
    If Vanguard were to go bust then you would still be the beneficial owner of £500k of investements as you were before they went bust.

    Vanguard do not have your money if you think about it, all they have is electronic records of which investments you have purchased through their platform.

    The likely outcome is that ANO pension / platform provider will purchase the ex-Vanguard business from the administrator and carry on business as usual.

    The downside is that could take months when you would be unable to easily deposit / withdraw funds, trade investments etc.

    In the same way as I have bank accounts with more than one company so that I still have access to money in the event of a protracted IT issue if I was dependant on that monthly payment cheque from Vanguard for paying my bills in retirement I would have a Plan B.

    As to whether Vanguard could go bust. Theoretically yes, as could all companies but highly unlikley given their size.

    The FSCS protects you against fraud at your provider but unless you believe it's possible that Vanguard are pocketing all the money being paid across to them and not purchasing investments it is difficult to see how a large enough fraud could take place. Hundreds / Thousands of Vanguard employees would need to be in on it.

    An individual employee could carry out something fraudulent that affects a small number of people to relatively small value in Vanguard terms (as bank / building society employees can and do on occasion). Vanguard would just make good the loss in that case and tighten their internal procedures.

    NOTE TO SELF - Must improve my typing speed.
  • That's brilliant info guys - thanks very much , that's has given my overthinking brain some relief for the time being :beer:
  • AlbermarleAlbermarle Forumite
    6.2K posts
    1,000 Posts Second Anniversary Name Dropper
    Probably if a company like Vanguard went bust , then it probably means the whole global economic system was bust ( maybe from nuclear war ) and there would not be any compensation available anyway, as the government would be probably hiding in a Scottish mountain somewhere.
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