Investment safety

PeteD11

Hi,

I’m concerned that having all my pension in a single SIPP (Nutmeg) might be risky. With 4 banks going out of business so far this year I wonder if I should spread my pension across multiple banks. I know about the FSCS £85k guarantee but I’m getting close to retirement so my pension is much bigger than £85k.

Reading their web site they have a “custodian bank” who is State Street, they put investments in “a segregated account” and never lends assets to third parties.

This sounds very reassuring but they also say they are covered by FSCS “ if we cannot meet our obligations”.

To me this sounds like a contradiction: The first sentence suggests there is no risk, if State Street and Nutmeg (owned by JPMorgan) went out of business then my investments are still mine. The second sentence says if they do go out of business then the FSCS can help with the first £85k.

Does anybody know the reality behind this? 

Thanks

Pete

wmb194

PeteD11 said:

Hi,

I’m concerned that having all my pension in a single SIPP (Nutmeg) might be risky. With 4 banks going out of business so far this year I wonder if I should spread my pension across multiple banks. I know about the FSCS £85k guarantee but I’m getting close to retirement so my pension is much bigger than £85k.

Reading their web site they have a “custodian bank” who is State Street, they put investments in “a segregated account” and never lends assets to third parties.

This sounds very reassuring but they also say they are covered by FSCS “ if we cannot meet our obligations”.

To me this sounds like a contradiction: The first sentence suggests there is no risk, if State Street and Nutmeg (owned by JPMorgan) went out of business then my investments are still mine. The second sentence says if they do go out of business then the FSCS can help with the first £85k.

Does anybody know the reality behind this? 

Thanks

Pete

I wouldn't panic. For investments the FSCS effectively covers you for maladministration, fraud and wind-up costs. You'll still own the underlying assets. 

The risk with brokers going bust is that it can take a while for your assets to be transferred to a new broker and so you may temporarily lose access to them and their cash flows.  In this case we're talking about JPMorgan, though, not a nobody.

Albermarle

It is a commonly asked question on here.
The £85K referred to is in case of losses due to platform failure. This is unlikely and if there were any issues then Nutmeg would probably get snapped up by a competitor and any costs incurred, by an administrator for example, would be covered by the £85K.
Your actual investments would not be affected by platform failure, although would probably be difficult to access for a while.
The bank they use is only where any cash is held.

dunstonh

I’m concerned that having all my pension in a single SIPP (Nutmeg) might be risky.

Nutmeg do not offer a SIPP.  

 With 4 banks going out of business so far this year I wonder if I should spread my pension across multiple banks.

Banks are not pension administrators and pension administrators are not banks.  You wouldn't move your pension to a bank.

I know about the FSCS £85k guarantee but I’m getting close to retirement so my pension is much bigger than £85k.

The FSCS works differently with unit linked investments than it does with banks. Mainly as banks use your money but that is not the case with unit linked investments.  

The use of the FSCS with unit linked investments is extremely rare.  However, you can reduce the risks.  a) use a mainstream provider that is profitable (Nutmeg have never turned a profit - although that is understandable given their approach) and stick to mainstream investments (nutmeg only use mainstream investments).    Or if you are extremely paranoid, move it to an insurance company and use in-house insured funds where you get 100% FSCS protection with no upper limit.

This sounds very reassuring but they also say they are covered by FSCS “ if we cannot meet our obligations”.
To me this sounds like a contradiction: The first sentence suggests there is no risk, if State Street and Nutmeg (owned by JPMorgan) went out of business then my investments are still mine. The second sentence says if they do go out of business then the FSCS can help with the first £85k.

A statement of fact is not a contradiction and not is not an indication of risk level.      All regulated firms transacting in regulated areas covered by the FSCS have FSCS protection.    

Remember that there are multiple levels here.  One of the unit linked investments used and the other is the administrator.  Nutmeg is the administrator only.

PeteD11

Thanks all for your help, really appreciate it

tacpot12

When it is time to draw on your pension, I would suggest you consider the level of risk of having all your pension with one provider. The most likely issue is IT problems that prevent you receiving regular income you are relying on. If you have no savings, and no other sources of income that would cover your essential outgoings, then splitting your pension between two providers would provide more certainty that you will always receive some income on a regular basis.

The majority of my cash savings are held with the same provider as my SIPP (my SIPP is in drawdown), but I also have about £15k on deposit in instant access savings accounts with a Bank, so I don't need a second SIPP provider.  

aroominyork

dunstonh said:

I’m concerned that having all my pension in a single SIPP (Nutmeg) might be risky.

Nutmeg do not offer a SIPP. 

Nutmeg offer personal pensions, though they do not use the term SIPP. is it any different?

Malthusian

tacpot12 said:

When it is time to draw on your pension, I would suggest you consider the level of risk of having all your pension with one provider. The most likely issue is IT problems that prevent you receiving regular income you are relying on. If you have no savings, and no other sources of income that would cover your essential outgoings, then splitting your pension between two providers would provide more certainty that you will always receive some income on a regular basis.

A better and much simpler solution would be to have some savings. Never mind IT errors, you don't want to be in the situation where if the fridge or the car breaks down, you need to withdraw an extra one-off payment from your pension. That can take weeks (especially if you have to jump through regulatory hoops to show you understand the consequences).
An IT error that stopped pensioners from receiving regular scheduled payments for more than a week or so would be in all the national newspapers. That's not to say it's impossible, but the standard emergency fund of "3-6 months' expenditure" should cover it. *edit* See the RBS Group IT crash of 2012, which lasted two weeks (a month for Ulster Bank). Questions were asked in Parliament, RBS was fined £42 million, and worst of all, the executives were unable to show their faces in their corporate box at Wimblebobs.
Thanks to pension freedoms, anyone looking at starting regular pension payments can take a one-off lump sum to create an emergency fund. (Doesn't apply to annuities already in payment, but it does if you have a Nutmeg pension you are planning to take some kind of income from.)

cloud_dog

aroominyork said:

dunstonh said:

I’m concerned that having all my pension in a single SIPP (Nutmeg) might be risky.

Nutmeg do not offer a SIPP. 

Nutmeg offer personal pensions, though they do not use the term SIPP. is it any different?

A 'proper' SIPP product was introduced back in the 90's (???) by the Labour Government and was designed to be a far more powerful pension product, allowing various different kinds of assets to be held under a tax-efficient wrapper (art, collectable cars, property, etc, etc).

Over the years the acronym SIPP has simply become commonly used to refer to an personal pension where a person may make a 'self investment' decision.  So there is the product 'SIPP', and there is the common use of the term to describe similar but more limited products. 

Albermarle

aroominyork said:

dunstonh said:

I’m concerned that having all my pension in a single SIPP (Nutmeg) might be risky.

Nutmeg do not offer a SIPP. 

Nutmeg offer personal pensions, though they do not use the term SIPP. is it any different?

To be a proper SIPP, a provider should have a 'whole of market' investment offering.
OEIC's, ETF's, IT's - all from many different providers + individual shares. So usually thousands of alternatives.
A personal pension will have a restricted offering, usually just of their own branded funds.

There are also Full Sipp's where you can also hold things like actual commercial property, but this is of course a more niche market.

dunstonh

aroominyork said:

dunstonh said:

I’m concerned that having all my pension in a single SIPP (Nutmeg) might be risky.

Nutmeg do not offer a SIPP. 

Nutmeg offer personal pensions, though they do not use the term SIPP. is it any different?

Some good responses above that cover it.

SIPP has become a fashionable phrase. Many believe you have to have a SIPP to have the best product.   So, a number of pension providers have used the word SIPP in their marketing despite them not being SIPPs.  

There are varying definitions of what a SIPP is and some of this is a result of there being products that are neither SIPPs or Personal pensions, stakeholder pensions or master trust schemes.  So, if they are none of those, what are they.....

However, SIPPs in their historic sense give you the ability to self invest regulated and unregulated assets from the whole of market.     Nutmeg has a small range of prebuilt portfolios with no ability to self-invest that is more akin to a stakeholder pension or basic personal pension but with lower FSCS protection (stakeholder pensions would have 100% FSCS protection with no upper limit due to them being insured contracts).