Workplace pensions – FSCS protection

Zaraf

Hi all

I have a query around FSCS protection on a workplace pension.

Standard Life is the provider. There are c.15 funds available. Each fund has the following structure through to the underlying fund:

1. A fund prefixed with the name of my employer and SL. This invests in the below fund (2).

2. A fund prefixed with the name of SL. This invests in the below fund (3).

3. The underlying fund – fund manager is either SL or external.

This is what the SL document says:

“Your plan is classed as a long-term contract of insurance. The trustee will be eligible for compensation under the FSCS if Standard Life Assurance Limited (SLAL) becomes unable to meet its claims. The cover is 100% of the value of the claim.

If your plan is invested in one of our funds that invests in a mutual fund run by another firm (including Standard Life Investments Limited), the trustee is not eligible for any compensation under the FSCS if that firm is unable to meet its claims. SLAL is not eligible to make a claim on the trustee’s behalf so the price of a unit in our fund will depend on the amount that we recover from the firm.

If your plan is invested in one of our funds that invests in a fund run by another insurer, the trustee is not eligible for any compensation under the FSCS if that insurer is unable to meet its claims. SLAL is not eligible to make a claim on the trustee’s behalf”.

My concern from reading the last 2 paragraphs is that if the underlying funds are not managed by SLAL and a fraud occurs, there is no FSCS protection and it just depends on what is recovered.

I’ve of course asked SL about this – they say that because the funds at levels 1 & 2 are SL funds, it is not 100% protected.

The FSCS website doesn’t help. It says:

- “If your pension provider fails - 100% of your claim, with no upper limit”.

- When I use the Pensions Protection Checker tool, it says “Answer - Defined contribution work pension schemes are structured in different ways, so you’ll need to check whether you’re FSCS protected or not.”

Thanks

Zaraf

Typo above - I’ve of course asked SL about this – they say that because the funds at levels 1 & 2 are SL funds, it IS  100% protected.

dunstonh

Internal Insured funds have 100% FSCS protection with no upper limit.  However, external insured funds have an £85k FSCS protection to the external fund manager but 100% to the internal provider.

However, it has never been tested with the FSCS, and probably never going to be.  So, there are differing views as to whether 100% or £85k applies to external funds.

Pensions that do not use insured funds are protected to £85k per fund house.

sandsy

My understanding is that if your personal pension is a long term insurer contract, it is 100% covered.

The FSCS website states: "Generally, FSCS can protect pensions that are provided by UK-regulated insurers, as long as they qualify as ‘contracts of long-term insurance’."

Source: https://www.fscs.org.uk/what-we-cover/pensions/

Zaraf

My reading of the FSCS guidance is that it is 100% covered if the provider fails.

 But the provider is just an admin function - all the funds are held by the fund managers - so I don’t take much comfort from this 

Zaraf

dunstonh said:

Internal Insured funds have 100% FSCS protection with no upper limit.  However, external insured funds have an £85k FSCS protection to the external fund manager but 100% to the internal provider.

However, it has never been tested with the FSCS, and probably never going to be.  So, there are differing views as to whether 100% of £85k applies to external funds.

Pensions that do not use insured funds are protected to £85k per fund house.

Any idea if SL workplace funds are typically insured? If they are, then 100% protected if I follow the above correctly?

What about the Woodford fund? Not a workplace pension, but the FSCS has not got involved because it has not gone into insolvency - so the amount recovered will be only 22.4% for investors...

dunstonh

Zaraf said:

dunstonh said:

Internal Insured funds have 100% FSCS protection with no upper limit.  However, external insured funds have an £85k FSCS protection to the external fund manager but 100% to the internal provider.

However, it has never been tested with the FSCS, and probably never going to be.  So, there are differing views as to whether 100% of £85k applies to external funds.

Pensions that do not use insured funds are protected to £85k per fund house.

Any idea if SL workplace funds are typically insured? If they are, then 100% protected if I follow the above correctly?

What about the Woodford fund? Not a workplace pension, but the FSCS has not got involved because it has not gone into insolvency - so the amount recovered will be only 22.4% for investors...

SL funds on most of their pensions are insured (only their SIPPs are not).

The FSCS have been approached a number of times to clarify the position on external funds, but their response is that they would look at the situation when called upon, but as of yet, they haven't needed to.  They wont spend the money to find out the legal position until they have to.   So, some providers say 100% and some say £85k.       

This is not actually uncommon.   There are multiple examples of the believed FSCS protection turning out to be wrong was a failure had been tested.  The largest example was with SCARPs.   A number of building societies and banks got their fingers burnt on that by claiming FSCS protection existed when it didn't.   But no-one expected the outcome that the FSCS came out with.

My take is that if the pension provider fails, then it would be 100%, but if the fund house fails, it will be £85k per fund house (the same as uninsured funds).      

Woodford didn't lead to it being tested and technically, the FSCS probably wouldnt have paid compensation on woodford even if it had gone insolvent as unit linked funds are the value of their assets.   Values going down because asset values go down is not something the FSCS covers.