£85k rule

JoBedlam

Hello, i am looking to start consolidating various investments, and would ideally like them on one platform. I've done a bit of research and thought Vanguard and/or AJ Bell look the best in terms of fees. Simple question, does the FCS £85k cover apply to these platforms and does it also apply if there is a direct investment in say M&G or II as well. I am starting out and doing some research and would be very grateful for any advice. Thanks.

dunstonh

 Simple question,

It's not really. Or at least it is not a simple answer.

 does the FCS £85k cover apply to these platforms and does it also apply if there is a direct investment in say M&G or II as well.

If you are talking platform and not hte investments, then there is £85k protection on the platform.     If you are talking about investments, then it depends on the investments you use.

UT/OEICs are £85k per fund house
ETFs/ITs and shares have no FSCS protection
Pension funds have 100% FSCS protection with no upper limit.  Although external funds may be limited to £85k if the external fund manager defaults.  However, that is untested and unknown with differences in opinions on what may happen and the FSCS has not clarified the position as it won't until it happens.

It is also important to remember that the FSCS protection works differently for investments and providers compared to deposits.

400ixl

As above really, depends on what investment you are making. Cash, shares, pension are all treated differently.

Albermarle

Many people hold much higher sums than £85K with one pension provider and/or fund house. The chance of a mainstream provider going bust is extremely small.
Banks are different in that they lend money to people,  who sometimes don't pay it back . Sometimes they lend too much ( see RBS ) and get in trouble . In this case best to stick to £85K for cash savings .

Malthusian

Simple question, does the FCS £85k cover apply to these platforms and does it also apply if there is a direct investment in say M&G or II as well.

The simple answer is that it doesn't matter. If the platforms go bust your money will still be there and you will have no loss to be compensated for.

When you loan money to a bank, which is what a current account or savings account is, the bank can lose your money and that is where you need FSCS cover.

A couple of caveats to the simple answer:

In some cases where a small investment platform has gone bust, the FSCS has stepped in to cover the administration costs on investors' behalf.

If it turned out the platform was running a "bucket shop" (i.e. it wasn't actually buying investments with your money), the FSCS would have to step in. The chances that AJ Bell or Vanguard are running a fraud on this scale is effectively nil. If they were, it would be the biggest financial scandal in economic history, and FSCS limits would be irrelevant as the Government would have to set up an ad-hoc compensation scheme.

JoBedlam

Thank you for your responses. My risk profile has certainly changed since 2009 and now 6 months away from retirement I do find myself questioning whether Governments can keep on bailing out financial institutions and people (furlough) without itself going bust? and i daren't even begin to contemplate the continual hand to mouth funding of the state pension. Maybe i will have a more positive outlook when I give up paid employment

dunstonh

t I do find myself questioning whether Governments can keep on bailing out financial institutions and people (furlough) without itself going bust?

The FSCS is not a Government scheme.  It is funded by levies on financial companies.   The Government can and does lend money to the FSCS but ultimately, it is the industry that funds it.

As the UK has its own currency, it can keep printing money.   That is not without risks but as every country has been printing money, it hasn't caused that much harm.

gm0

A very comprehensive summary of the situation upthread.  The reality is that in the case of a "new and major fail" for the sector it is untested in law.  And given the various players involved and insurance and lawyers etc. any such situation with £bn at stake would be subject to extensive litigation and then political action or inaction as with Equitable Life historically (no it's not the same thing but it illustrates the potential for long delays in attending to an issue such as this). 

Even the pension focused parliamentary briefing packs on reform basically admit that the actual status of protection on the high end for occupational trust pensions for consumers under the 100% protected pension fund model is effectively "unknown" in this very specific sense of being "untested" in practice.  Intent is clear. Trusts exist.  FSCS scheme exists etc.

The only sensible responses to all this low level noise and mess are to either

a) accept and carry the tiny risk - with confidence in investment custody arrangements and those for platform failure and customer takeover 

b) split your money across multiple institutions (platforms) and fund managers in order to hedge the (tiny) risk across multiple providers - thus reducing the size of impact on you of most failures which relate to these layers. Loss of access for a period being the most likely impact.  Custody should protect your investments but it may take time to regain access for trading or income.

Option b costs you a small amount of extra money - 2nd platform fees.  Fund management fees being a wash.  And a degree of extra complexity around rebalancing etc.

Albermarle

I had four DC pensions ( three employer ones and a SERPS one ) . Now down to three ( two original and one new SIPP)
Maybe will go down to two at some point, especially when I start to drawdown ,  but they all have pluses and minuses ( cheapest has poor website and customer service - Scottish Widows) . I would not go down to one , all eggs in one basket .

Option b costs you a small amount of extra money - 2nd platform fees

That depends on charging structures . In some cases no extra costs for having more than one platform .