Defined Contribution Pension Scheme - lack of clarity and lack of Pension Protection Fund from GVT

tellme_why

Hi Forum,

I am auto-enrolled into an employee's DC Pension Scheme with a  large Pension provider that offers a wide range of products, including SIPP, DB etc.

The issue I have is that the pension provider nor my employer provide meaningful information or advice on my pension. 

They keep saying I shall rely on a third-party financial advisor when in need of investment advice.

However I don't need investment advice, I only need assurance/evidence that my pension fund will not go bankrupt.

I am interested in finding out more information about the solvability risk associated with my pension pot; they provided a very basic two pages pdf which contains information such as: 1) the fund is global equity index tracking 2) the type of index 3) the size of the fund 4) the main holdings and 5) the performance to date.

This pdf contains much less information compared to the normal KIID of a retail index fund one can buy from fund supermarkets or online brokers.

For example, there is no annual report to shareholders and indication of the legal structure of the fund, who is the fund manager, and who is the scheme trustee.

Please can anyone with DC scheme invested in index tracking fund advise

1) what written information they receive from their provider about the fund legal structure?

2) how this information compare with ordinary ETF or Mutual funds docs 

3) are your DC funds covered by GVT guarantee up to 70k?

4) Whilst DB funds have a full GVT guarantee (Pension Protection Fund) it seems DC funds have none; aren't you concerned about this?


Many Thanks



 

Marcon

tellme_why said:

Hi Forum,

I am auto-enrolled into an employee's DC Pension Scheme with a  large Pension provider that offers a wide range of products, including SIPP, DB etc.

The issue I have is that the pension provider nor my employer provide meaningful information or advice on my pension. 

They keep saying I shall rely on a third-party financial advisor when in need of investment advice.

However I don't need investment advice, I only need assurance/evidence that my pension fund will not go bankrupt.

I am interested in finding out more information about the solvability risk associated with my pension pot; they provided a very basic two pages pdf which contains information such as: 1) the fund is global equity index tracking 2) the type of index 3) the size of the fund 4) the main holdings and 5) the performance to date.

This pdf contains much less information compared to the normal KIID of a retail index fund one can buy from fund supermarkets or online brokers.

For example, there is no annual report to shareholders and indication of the legal structure of the fund, who is the fund manager, and who is the scheme trustee.

Please can anyone with DC scheme invested in index tracking fund advise

1) what written information they receive from their provider about the fund legal structure?

2) how this information compare with ordinary ETF or Mutual funds docs 







 

Neither your employer nor the pension provider is allowed to provide you with investment advice, so if you are phrasing your questions in a way which says this is what you are asking for, they can't answer you but are, quite correctly, suggesting you contact a financial adviser.

Who is the pension provider? Is this a master trust, a group personal pension, or what - there should be some indication somewhere in the paperwork.

tellme_why said:

3) are your DC funds covered by GVT guarantee up to 70k?

4) Whilst DB funds have a full GVT guarantee (Pension Protection Fund) it seems DC funds have none; aren't you concerned about this?

DB schems don't have a 'full government guarantee' - the PPF generally pays lower benefits than the original scheme.

DB schemes operate in a wholly different way from DC arrangements, so have different protections. In broad terms, DB schemes have one large fund to cover everyone. DC funds are held in individually allocated 'pots' or policies, depending on how your scheme is structured. These are ring fenced, so even if your employer or the pension provider runs into difficulties, your savings are kept entirely separate from the assets of the business/provider.

See https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics/how-safe-is-your-pension which should help to set your mind at rest.

Linton

Generally in a DC pension the value is in a set of investment funds that are held under trust for you by the pension scheme.  The funds are completely separate financially from the internal finances of the scheme manager or your employer and so cannot be accessed by either to pay any debts.  In the event of the scheme manager, the fund manager or your employer going bust responsibility for the management would be transferred to someone else.  There could be a delay whilst the mess was sorted out but your pension would be safe.

Albermarle

I only need assurance/evidence that my pension fund will not go bankrupt.

If it is an index tracking fund, it basically is made up of thousands of shares of major companies around the world. It is not clear to me how such a fund can actually go bankrupt.

tellme_why

Thank you very much Marcon.

Quote "Who is the pension provider? Is this a master trust, a group personal pension, or what - there should be some indication somewhere in the paperwork": Unquote. It's Aegon - I cannot find any information about the legal structure of the arrangement (master trust, group personal pension etc.).

The only documents available are 1) Plan summary (generic indication about selection of funds, risks etc.) no info about the legal structure 2) Key features of the plan - again generic information with a dedicated section** 3) Specific feature of the selected fund  such as FTSE global tracker fund but no ISIN number, in general less info than a normal KIID for retail fund.

Via e-mail they stated that the fund is "UK insured unit linked fund". This feature is not written anywhere in the docs provided and I am not sure what "insured" means.

** I paste here the specic section of Key fact 
Quote "If you are a retail client your plan is covered by the Financial Services Compensionation Scheme FSCS.

You may be entitled to compensation from the scheme if we can't meet our obbligations, for example, if we were to become insolvent and unable to meet the claim against us.
Your plan "Brand name Group Personal Pension" is an insured scheme. Insurance business of this type is generally covered 100% for the value of the whole claim without limit.
If you choose to invest in a collective investement managed by other firm, you'll not be eligible for any compensation under the FSCS." Unquote. Not sure what this means. 

Albermarle

Via e-mail they stated that the fund is "UK insured unit linked fund". This feature is not written anywhere in the docs provided and I am not sure what "insured" means.

It means this.

Your plan "Brand name Group Personal Pension" is an insured scheme. Insurance business of this type is generally covered 100% for the value of the whole claim without limit.

100% compensation if anything goes wrong. Although this has never been tested as an insured fund has never gone bust AFAIK.
I think you are worrying unnecessarily.

tellme_why

Linton said:

Generally in a DC pension the value is in a set of investment funds that are held under trust for you by the pension scheme.  The funds are completely separate financially from the internal finances of the scheme manager or your employer and so cannot be accessed by either to pay any debts.  In the event of the scheme manager, the fund manager or your employer going bust responsibility for the management would be transferred to someone else.  There could be a delay whilst the mess was sorted out but your pension would be safe.

Hi Linton, without full disclosure of the legal structure of the my pension fund - this would only be a wild assumption. I don't know who is the underlying provider of the tracker fund, I don't know who is the custodian.

As an example, if you buy BlackRock retail ETF from a fund supermarket provider, you may loose direct relationship with balckrock and be exposed to bankruptcy of the fund supermarket -- see here https://www.comparefundplatforms.com/about-fund-platforms . You may only get FSCS cover £85k but nothing beyond that.

Linton

To answer some of the questions raised...  As I understand it:

 - "Pension" funds are 100% covered by insurance.  Normal investment funds are not.  Employer pension schemes generally use Pension funds.  diy SIPPs for example dont. 

 - The question of protection for mainstream regulated investment funds has been discussed many times on this forum and as far as I can remember no-one has ever come up with a realistic scenario where it has applied or could be an issue.

 -  if a pension scheme made a mistake or acted inappropriately causing you financial loss it would be responsible for compensating you.  If it was unable to do that because they had gone bust you could apply to the FSCS. In your case the pension scheme is covered by insurance so FSCS involvement would be unlikely to be relevent.

 - one general point of clarification.   There is no cover for poor investment.  If your chosen fund makes a massive loss because it invested in the wrong things you dont get compensation.  Any investment implies some level of risk.

Marcon

tellme_why said:

Thank you very much Marcon.

Quote "Who is the pension provider? Is this a master trust, a group personal pension, or what - there should be some indication somewhere in the paperwork": Unquote. It's Aegon - I cannot find any information about the legal structure of the arrangement (master trust, group personal pension etc.).

Your plan "Brand name Group Personal Pension" is an insured scheme. Insurance business of this type is generally covered 100% for the value of the whole claim without limit.

It's a group personal pension, which is simply a term for a cluster (i.e. group) of individual personal pensions. They are contracts of insurance and, reassuringly, your provider confirms they are covered for 100% with no upper limit. As Albermarle says, you are worrying needlessly, so hopefully will have a happier start to the New Year!

tellme_why said:

If you choose to invest in a collective investement managed by other firm, you'll not be eligible for any compensation under the FSCS." Unquote. Not sure what this means.

 

I presume you've anonymised the name of the 'other firm'.  The FCA has this to say, so you can check the firm in question by using the FCA Register:

Collective investment schemes

A type of pooled investment where profits or income are shared between the investors Usually managed by a fund manager. The risk depends on what types of asset the fund has been invested in (e.g. bonds, equities, cash, property, other asset types).

Unauthorised collective investment schemes (UCISs) may invest in riskier assets or use riskier investment strategies than UK authorised or foreign ‘recognised’ collective investment schemes. You can check the FCA Register to find out whether a particular collective investment scheme is authorised or recognised.