Does the £85k FCSC Limit Apply to Pensions?

GasAttacK77

I'm self employed and have a private pension with PensionBee.

Should I keep my pension pot below £85k and invest in a new pension with a different provider to ensure it's all protected, or does the £85k limit not apply to pensions?

Brie

No that doesn't apply.  Many people have pensions with one company that go well above 7 digits.  They are an investment so value may go down or up (hopefully up) but for safety it's best to have diversity of investments wherever your pension is.  

poseidon1

GasAttacK77 said:

I'm self employed and have a private pension with PensionBee.

Should I keep my pension pot below £85k and invest in a new pension with a different provider to ensure it's all protected, or does the £85k limit not apply to pensions?

Interesting question probably prompted by the FSCS website itself below- 

https://www.fscs.org.uk/what-we-cover/pensions/#:~:text=Pensions,check that it's FSCS protected.&text=bad pension advice-,we can pay up to £,per eligible person, per firm.


I now have my SIPP with II having migrated from HL. I rely on my sipp investments being held in custodian accounts  ( a form of trustee  arrangement) which is separate and distinct from the assets and liabilities of the sipp provider in the event their own business takes a tumble - see II's commentary below - 

https://www.ii.co.uk/about-us/your-protection

On this basis I am content to have 100s of thousands in assets with the one platform, but interested to hear other thoughts on the issue.

dunstonh

Does the £85k FCSC Limit Apply to Pensions?

Which FSCS limit are you referring to?
The FSCS has three main classifications.    Deposits, life & pensions and investments. 

Potentially, all three classifications could apply to a pension.   And potentially, you could get little or no FSCS protection on parts of the pension depending on the asset through to 100% FSCS protection with no upper limit.

Should I keep my pension pot below £85k and invest in a new pension with a different provider to ensure it's all protected, or does the £85k limit not apply to pensions?

At fund level, you should stick to regulated unit linked funds as FSCS protection is largely irrelevant with those.

At provider level, stick to mainstream providers who are profitable and do not have high levels of illiquid assets on their books then you should not have an issue as your funds are ringfenced from the provider.     The illiquid assets issue is important, as if this drags the provider down, you could see the FSCS used against you, even if you don't have illiquid assets.    All the major mainstream platforms won't allow illiquid assets that could drag them down.   However, small niche players can do.

If you use a pension from a life assurer and invest in insured funds, then you have FSCS protection to 100% of the value, whatever that is. However, externally managed funds may be limited (the FSCS has never been tested on them, and nobody knows for sure whether external life and pension funds would fail the 100% test or not—it would probably never be tested either).

Pensionbee claim on their website that they get 100% FSCS protection but they use external fund managers.   That is their opinion.  And as I said some other providers also make that claim but some also claim the investments limit would apply to external fund managers to the insurer.   Nobody really knows and given the tiny risks involved in it every being called in, we are never going to know.

If you use ETFS, shares, or investment trusts in your portfolio, they do not receive FSCS protection.  Although you still would get it at provider level and at adviser level (if you used an adviser).

Bottom line, is that is that you shouldn't mistake the need for deposit protection with pensions, life and investments.   They have different issues. Some can be important. Some of no importance and to answer your question, no you do not need to have multiple providers because of the deposits protection scheme limit.

 

Aretnap

It does and it doesn't. The £85K limit does indeed apply, but it is less important because there is far less likelihood that you would ever claim on it. 

Unlike a bank account which is a debt that the bank owes to you, your pension consists of underlying assets (shares, bonds etc) and PensionBee is merely the custodian of them. If PensionBee went bankrupt the shares and bonds would still belong to you and (possibly after a short delay while they were transferred to another platform) you would still be able to access them and would not lose anything. So there would be nothing to claim from the FSCS.

Meanwhile the FSCS doesn't cover investment risk, so if your pension loses value due to a stock market crash that's just bad luck - not something you will be compensated for. 

That doesn't leave many scenarios where the FSCS protection would matter. One that's occasionally talked about is fraud or gross misemanagement. If the pension provider told you that your money was invested in shares and bonds, but they actually lost it on the horses or blew it on coke and hookers, the FSCS would cover that, up to a maximum of £85K. However the chance of a large mainstream platform like PensionBee engaging in that type of wholesale fraud is probably negligible, which is why most of us are happy to keep well over £85K with a single provider.

Marcon

Brie said:

No that doesn't apply.  Many people have pensions with one company that go well above 7 digits.  They are an investment so value may go down or up (hopefully up) but for safety it's best to have diversity of investments wherever your pension is.  

It certainly can apply! A blanket 'no it doesn't' is quite simply misleading.

squirrelpie

The usual answer is that the compensation limit is not as important, since if the provider (e.g. H-L) were to go broke the investments in your pension would still belong to you and only cash would be covered by the FSCS. But even the FSCS itself thinks the limit is too low, for reasons explained in:

https://www.fscs.org.uk/globalassets/industry-resources/publications/the-balancing-act-of-compensation.pdf

TL;DR - if you are badly advised by a 'pension company' you might lose a lot more than £85k and not be able to claim it back.

So I think the answer really depends on your attitude to risk and what you ask your provider to do for you.

Albermarle

poseidon1 said:

GasAttacK77 said:

I'm self employed and have a private pension with PensionBee.

Should I keep my pension pot below £85k and invest in a new pension with a different provider to ensure it's all protected, or does the £85k limit not apply to pensions?

Interesting question probably prompted by the FSCS website itself below- 

https://www.fscs.org.uk/what-we-cover/pensions/#:~:text=Pensions,check that it's FSCS protected.&text=bad pension advice-,we can pay up to £,per eligible person, per firm.


I now have my SIPP with II having migrated from HL. I rely on my sipp investments being held in custodian accounts  ( a form of trustee  arrangement) which is separate and distinct from the assets and liabilities of the sipp provider in the event their own business takes a tumble - see II's commentary below - 

https://www.ii.co.uk/about-us/your-protection

On this basis I am content to have 100s of thousands in assets with the one platform, but interested to hear other thoughts on the issue.

I think most regular forum contributors who have decent sized pension assets would agree with you. Although it is often said it is better to split between two providers, in case of a big IT meltdown.
I had five historically. Now three. Will probably go to two, but not sure who to 'lose' .
Also like a few other forumites, I occasionally swap provider to get cashback, and it is also a good way to test out their website, customer service etc.