Large DC pension - stick with insurance company or move to SIPP with HL/II ?

BlisteringBarnacles

I have a substantial (almost £ 1 million) Defined contribution pension with Aegon. I left my employer so it has turned into a SIPP. Aegon's default fund UBC (Universal Balanced Fund) was good - low cost, mostly trackers and most important of all "insured" so any broker going bust is covered 100%. I can continue to stick with this fund with Aegon but it is 65% equities. I want my pension to be 100% bonds. Because I have another million outside of pension where I can take equity risk and I dont want more than 40-45% in equities anyway.

Still searching for a good low cost Aegon global bond fund which is also "insured" like a pension fund. Havent found one. Their search function isnt great. Perhaps I can go with the default Aegon UBC fund above but go for "lifestyling" with a retirement date of today, so it basically becomes a global bond fund.

I said the default UBC fund was "good" at least on the equities side. It had global equities, mostly trackers. Not sure about the bond part. Also if I lifestyle it to zero equities, along with bonds, it may hold a lot of cash which is not ideal. This is a significant chunk of my wealth so, while safety is important, I also want a "good" fund.

What I want to do is : move the Aegon SIPP out to Hargreaves/Interactive Investor and invest in a mix of iShares global govt bond ETF, Vanguard global bond/etf. But if the broker goes bust it wont be covered above 85K for cash part, not sure about any stock holdings. Assets are supposed to be ring fenced and all that. But Beaufort happened. I already have my taxable and ISA split between Hargreaves and Interactive Investor. Perhaps I can use a third broker such as AJ Bell or Charles Stanley just to move this Aegon SIPP and spread the risk ? But it still wont be "insured".

Is an "insured pension fund" such a great safety haven compared to Platform SIPPs ? Or am I worrying too much ? In spite of asset segregation, if bad things happen, can they touch client's ring fenced assets ?

Thanks

BlisteringBarnacles

Another option is to stick with Aegon and buy the low cost ishares or Vanguard trackers if the platform allows and it is still low cost thru the platform. Since  Aegon / Aviva etc are large insurance companies, chances of going broke are low. Thus, even tho I dont get the 100% protection of "insured funds" it is still a decent compromise.

Does that make sense at all ?

Thanks

LHW99

My understanding (no expert) is that in any SIPP, the funds etc you hold are ring-fenced from the platform itself. So even if II / HL went bust, your funds would not be at risk (and the £85k FSCS protection isn't relevant)..

It would mean you may have to wait weeks / months for the funds to be picked up by another platform to allow you to access them, but you would not lose them.

AJ Bell says this about the FSCS (my bold):

"...Any creditors of AJBML (AJBell Securities Ltd) or STL (Sippdeal Trustees Ltd) would have no claim over the
assets of your SIPP or RIA.
For GIA and ISA accounts, client money is held in trust accounts, opened with UK-regulated banks, in the name of
AJBSL, which is authorised and regulated by the FCA...."

https://www.investcentre.co.uk/sites/default/files/AJBIC_FSCS.pdf

The banks will be covered for cash, I assume HL / II will be similar

Albermarle

Another option is to stick with Aegon and buy the low cost ishares or Vanguard trackers if the platform allows and it is still low cost thru the platform. Since  Aegon / Aviva etc are large insurance companies, chances of going broke are low. Thus, even tho I dont get the 100% protection of "insured funds" it is still a decent compromise.

 I believe that although the Aegon pension funds are insured, no similar company has ever gone bust, so the 'insurance' has never been tested in the courts.

Also if the financial situation was so bad that Blackrock/ishares and Vanguard go under, then it would presumably mean that the whole global financial system had collapsed, so any insurance via Aegon would be worthless.

BlisteringBarnacles

Thanks a lot for the replies. There are various threads on reddit, citywire forums, on what happens if broker goes broker. Client assets are supposed to be ring fenced. But in the case of Beaufort, investors lost some money - dont know if it was just cash or securities too. occam/monevator articles are worrying. 

I quote monevator : "Some personal pensions qualify for 100% FSCS protection. (That is, the maximum compensation level is not capped at £85,000. The firms must be regulated by the PRA. And the particular scheme must be classed as a contract of long-term insurance to qualify for FSCS protection."

So, with Aegon, I would get this type of protection only with their own "pension funds" I suppose. If I bought Vanguard World All Cap Index from Aegon platform, I doubt I would get that cover.

My fear is not so much Vanguard / ishares going bust but platform going bust and ring fencing not respected. Here my wild guess is : likes of Aviva, Aegon, Standard Life going bust is less likely than AJ Bell, Interactive Investor, and even HL. I say this because if you are an insurance company, you understand risk better than just brokers. Hence if I own a Vanguard fund with Aegon, even tho it is not an "insured fund", since Aegon itself is unlikely to go bust, I should do well. But I could be talking complete nonsense here and maybe it is just my paranoia.

If Aegon / Standard Life had one good global bond fund ( comparable to Vanguard global bond fund ) that also happened to be a "pension fund", I would sleep well knowing that this part of my portfolio is at least rock solid. Still looking for one.

Thanks

BlisteringBarnacles

old but Interesting article : https://www.investorschronicle.co.uk/the-editor/2018/05/11/broken-fences/

I quote : PwC has said that its fees will be in the region of £100m, and that legal precedents mean it can dip into client assets to pay itself and other advisers involved in the administration.

Bostonerimus1

Vanguard has a structure where the funds own the company and are separate legal entities so there's really no way you can lose money other than from market investment losses and the chances of you losing money with other large brokerages from a commercial "failure" are very, very small as your money is separate from the finances of the brokerage itself.  Fraud is how clients usually lose money in brokerage failures and that's more likely with small brokerages and bespoke solutions. You should be worrying far more about your tax situation and how you organize your asset allocation across your tax deferred pension accounts, ISAs and general accounts. I'm not sure if your "insurance" with Aegon is actually worth anything and I would be comparing features like costs and drawdown provisions between SIPP providers first.

gm0

Neither protection 85k nor 100% (insured) is unambigously legally tested in a major enough failure.  It's all a bit of a punt.  And in a large failure two things are certain. 1 All involved risking holding the liability baby will sue one another delaying matters considerably.  2 The government will be very very slow to intervene - if it ever does - per Equitable Life.

Arm waving of the sort that says custody arrangements mean a loss of access = yes and a loss of assets = no in all possible circumstances is with respect - optimistic.  We have not fully explored the full range of criminality and unexpected future operational/technical/legal/international issues as could arise.  So I think this is a heuristic "claim" rather than a fact.

But these are long tail low probability risk considerations.  Yes they are.

So are "insured" funds of similar cost and asset type to uninsured ones a harmless thing to take advantage of if available in your setup.  Also yes. 

The key thing being that assets are what you want and costs are OK

I don't limit myself to only insured funds.  But where I have an existing scheme and it fits into my asset allocation and offers them at good prices.  Then there is a modest advantage.  Most of which comes from having two platforms and halving the risk IMPACT of the long tail risk.  And a little - perhaps - comes from the 100% guarantee.

dunstonh

I have a substantial (almost £ 1 million) Defined contribution pension with Aegon. I left my employer so it has turned into a SIPP. Aegon's default fund UBC (Universal Balanced Fund) was good - low cost, mostly trackers and most important of all "insured" so any broker going bust is covered 100%. 

You only get 100% FSCS protection if you use insured funds.  If you use OEICs/UTs then its £85k per fund house.

 I believe that although the Aegon pension funds are insured, no similar company has ever gone bust, so the 'insurance' has never been tested in the courts.

Its not been tested and there are some differences in opinion between providers.  Mainly where the insured fund is an external fund house.  However, it will probably never be tested. So, we will never know for sure.

Thanks a lot for the replies. There are various threads on reddit, citywire forums, on what happens if broker goes broker. Client assets are supposed to be ring fenced. But in the case of Beaufort, investors lost some money - dont know if it was just cash or securities too. occam/monevator articles are worrying. 

Beaufort is not comparable because of the nature of the assets held.  Its why you see the frequent warning to avoid platforms with high levels of illiquid assets.  Nobody will buy them as a going concern on the cheap.   

BlisteringBarnacles

Thanks again for the kind replies. Thanks a lot for taking the time.

I have a bit of obsessive compulsive streak and go into analysis-paralysis mode. This is one of those areas where I am unable to make the call. Since large sums (from my perspective) are involved, my indecision is a bit paralyzing. As I said I am not worried about Vanguard/iShares going bust. My fear is about platform going broke and the auditors start grabbing ring fenced assets. If there is an actual law preventing that then that would help.

Perhaps I am contradicting myself. Vanguard/iShares also use nominee accounts and ring fenced assets, so technically whatever fear I have for the platform should also apply to fund manager Vanguard / iShares I suppose ...

I guess the problem stems from the fact that we dont legally own the actual underlying assets ? But if I am comfortable with fund managers Vanguard, Blackrock, I should also be comfortable with a behemoth such as HL. But I am not sure about Interactive Investor. They are profitable but are they too big to fail ? 

Furthermore, I may not get another opportunity to change my mind (move platform) later because after setting up my portfolio I may become non resident later this year. I would like to keep my investments (pension and non pension) in UK tho in some sort of global portfolio in case I return. After becoming non resident I will be unable to move providers. So I need to make a reasonably good decision that I can stick with.

It is not that I am incapable of any decision tho'. For example 1) I Know my Asset allocation  2) want at least 2 platforms for redundancy 3) will Take 25% cash lumpsum out of pension soon. My UK assets stand as follows : Emergency (not investable):£100K  Taxable:£100K  ISA:£400K  Standard Life SIPP:£100K  Aegon SIPP:£900K - After taking 25% = 250K out of pension, I get investable amount as : Taxable:£350K  ISA:£400K  SIPP:£750K

Lets say I need only £500K in Stocks and rest in bonds (as an example AA). So I would arrange my portfolio as : Taxable:300K:Vanguard Global Stock index fund or ETF. Within the ISA, 200K in the same Vanguard Global stock index fund or ETF and 200K split (probably 40:40:20) between iShares Global Government Bond UCITS ETF USD Accumulating(IGLA), Vanguard Global Bond Index Fund ACC OR Vanguard Global Aggregate Bond UCITS ETF ACC (VAGS), and Royal London Short Duration Global Index Linked Fund ACC. Split the general investment account and ISA equally between HL and II and hold only ETFs in HL to cap the cost. At least I am decisive about this.

But what do I do with the £800K SL/Aegon pension ? Which of the following options would you choose in my situation ?

1. move the 750K SIPPs to HL/II (equal split) and use Vanguard /ishares global bonds as above since I like those funds for my bond allocation
2. Same as 1 but use a 3rd broker. (Check that the broker supports non residency. HL, II do ).
3. Use Aegon itself - since it is a large insurance company and use only Vanguard Global Bond Index Fund (0.15% charge) since other 2 are not available on Aegon. Aegon has 0.40% Platform charge capped to 250K so that is extra £1000. Final cost is 0.28%
4. Use Aegon and default Aegon fund (UBC)'s lifestyling flavour - they call it "flexible" fund and I can set a retirement date of current date so they move me 100% into bonds. That would be an insured fund, but I think it holds 25% in cash to allow you to take out 25%. Once it goes into drawdown, I doubt they will have 25% in cash. Charges : 0.13% for the UBC fund itself + 0.4% platform charges capped at £250K. Final cost is 0.26% - https://extranet.secure.aegon.co.uk/static/sxhub/pdf/client-pen-univbalcollection.pdf  - Says 1.03% but I will get the 0.13% rate.
5. Look for a low cost global (preferably govt) bond fund which is also an "insured fund" from either Standard Life or Aegon and switch to that. Hard to find one - the search function is not great.


So I thought would go thru the pros and cons of each of the above : 1 to 5.

1. From your replies, option 1 looks like a decent option. HL is a huge company. II is not that huge, but still assets are segregated so hopefully nothing bad should happen. I will still have 2 brokers, so if one has IT outage, the other is still there.
2. One more level of redundancy. I could split my money equally between all three. So if something really catastrophic happens to one, I lose 1/3rd of my wealth.
3. Little expensive. I dont get "insurance" protection. But probably better than 2 since Aegon is a large insurance company and I like the Vanguard fund.
4. I get good "insurance" etc altho such a thing has never been tested. So I guess it is just a promise, just like ring-fencing is supposed to be a sacred promise. So assuming I get that benefit and lets me sleep well, how bad is this fund ? Any opinions on how it compares to Vanguard global bond ? I will choose the lifestyle mode so equities will be negligible. Then it looks like a global bond fund. I am not looking for great growth in my bond portion.
5. still cant find any SL/Aegon insured fund at < 0.20% expenses that is a good global bond fund.

Or mix 3 and 4. Hold the SIPP only in Aegon. Have 500K in the UBC flex insured fund and 250K Vanguard within Aegon.

I guess most of you would choose Option 1 and be done with it ? Sorry I tend to write long. Wanted to be specific abut the 4 or 5 choices.

If the UBC fund is more or less decent, perhaps I will go for that option. I had it for so many years and it did ok for me but the one I had was 70% in equities and about 70% trackers. I am not sure how good the fund is once you take out equities out of it.

If you are still here, thanks for reading.

Albermarle

A couple of years ago II were bought by ABRDN.

Our Story, Vision & People | About Us | abrdn

One possible point is that on the forum we see Aegon being mentioned as having rather old systems.
Also in general, the more modern SIPP providers with newer IT and seemingly better informed customer service people, would probably be better to handle anything out of the ordinary, such as being non resident. Just my thoughts, others may differ.