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    • VDOT47
    • By VDOT47 19th Nov 19, 12:28 PM
    • 273Posts
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    VDOT47
    Pension Fund Protection
    • #1
    • 19th Nov 19, 12:28 PM
    Pension Fund Protection 19th Nov 19 at 12:28 PM
    Hi - am I right in saying that pension fund providers are protected the same scheme as banks ie. up to £85,000?

    If so, presumably if you have a pension pot larger than that amount in one fund provider then if that provider fails then your level of compensation is limited to £85,000? By this, I mean the provider goes bust, rather than just that the investments produce big losses - just to clarify!

    If so, do people usually just take this risk or is it safer to create (although, admittedly, more complicated to manage) numerous smaller pensions with different providers?
    Original Mortgage (Feb '17) £269,995
    Current Mortgage (End 11/19) £226,790
    End Date November 2039 Original End Date February 2042
Page 1
    • AlanP
    • By AlanP 19th Nov 19, 12:42 PM
    • 1,757 Posts
    • 1,409 Thanks
    AlanP
    • #2
    • 19th Nov 19, 12:42 PM
    • #2
    • 19th Nov 19, 12:42 PM
    If a provider fails you are very, very unlikely to lose anything as your underlying investments are separated and not assets of the provider.

    For example we use Fidelity as our provider with investments in L&G and HSBC funds among others. If Fidelity fails we still have those investments.

    The exception would be if there was a major fraud at the provider, and despite their website saying I had L&G and HSBC investments in fact someone at Fidelity had run off with my money - unnoticed by any of the other employees, audit people etc., or possibly if all x000 of those employees colluded together.

    What would happen if your provider fails is that transactions would be stopped whilst a 3rd party / new buyer sorts things out so if you are at the withdrawal stage then there is some sense to having alternative providers that you could still get money out of.

    NOTE - This applies to mainstream, regulated providers not scam operations where you have lost the moment you sign up.
    • SonOf
    • By SonOf 19th Nov 19, 12:57 PM
    • 1,892 Posts
    • 2,150 Thanks
    SonOf
    • #3
    • 19th Nov 19, 12:57 PM
    • #3
    • 19th Nov 19, 12:57 PM
    Hi - am I right in saying that pension fund providers are protected the same scheme as banks ie. up to £85,000?
    Depends on the investments you use in the pension. Banks use the deposit part of the FSCS. Pensions can use the investments part or the insurance part.

    Most stakeholder pensions, workplace pensions and personal pensions use insured funds which get 100% FSCS protection with no upper limit.

    If you use UT/OEICs then you get £85k per fund house. If you use ETFs/ITs or Shares then you get no FSCS protection.

    Whether you are advised or non-advised has an impact as well.
    • Albermarle
    • By Albermarle 19th Nov 19, 4:43 PM
    • 1,859 Posts
    • 1,197 Thanks
    Albermarle
    • #4
    • 19th Nov 19, 4:43 PM
    • #4
    • 19th Nov 19, 4:43 PM
    The exception would be if there was a major fraud at the provider, and despite their website saying I had L&G and HSBC investments in fact someone at Fidelity had run off with my money
    In this case you would be covered up to £85K for any losses caused by platform fraud/maladministration , although like you say in reality probably a third party would be installed to sort out any mess and probably actual losses would be minimised.
    If so, do people usually just take this risk or is it safer to create (although, admittedly, more complicated to manage) numerous smaller pensions with different providers?
    This question is asked regularly on this forum and the answer usually is if you stick to mainstream providers , the chances of a major problem are seen as minimal . It's quite common for otherwise cautious investors to have many multiples of £85K with just one or two platforms .
    However as Son OF explained , the only truly secure pensions are personal/workplace pensions with the big name insurers , like Standard Life, Aviva, L&G , Prudential etc
    • Thrugelmir
    • By Thrugelmir 19th Nov 19, 4:53 PM
    • 65,869 Posts
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    Thrugelmir
    • #5
    • 19th Nov 19, 4:53 PM
    • #5
    • 19th Nov 19, 4:53 PM
    Stick to investments that are liquidifiable i.e. tradeable daily.
    ““there really is no such thing as ‘the future’, singular. There are only multiple, unforeseeable futures, which will never lose their capacity to take us by surprise.””
    ― Niall Ferguson
    • VDOT47
    • By VDOT47 19th Nov 19, 4:57 PM
    • 273 Posts
    • 761 Thanks
    VDOT47
    • #6
    • 19th Nov 19, 4:57 PM
    • #6
    • 19th Nov 19, 4:57 PM
    Thanks for the comments.

    Better to stick with big insurers’ funds then by the sound of it then.
    Original Mortgage (Feb '17) £269,995
    Current Mortgage (End 11/19) £226,790
    End Date November 2039 Original End Date February 2042
    • coyrls
    • By coyrls 19th Nov 19, 5:00 PM
    • 1,292 Posts
    • 1,431 Thanks
    coyrls
    • #7
    • 19th Nov 19, 5:00 PM
    • #7
    • 19th Nov 19, 5:00 PM
    Stick to investments that are liquidifiable i.e. tradeable daily.
    Originally posted by Thrugelmir
    How would that help if the provider goes bust? You won't be able to trade, regardless of the liquidity of your investments.
    • coyrls
    • By coyrls 19th Nov 19, 5:05 PM
    • 1,292 Posts
    • 1,431 Thanks
    coyrls
    • #8
    • 19th Nov 19, 5:05 PM
    • #8
    • 19th Nov 19, 5:05 PM
    Thanks for the comments.

    Better to stick with big insurers’ funds then by the sound of it then.
    Originally posted by VDOT47
    That really depends on your view of the risks associated with provider failure. I would suggest the risk of loss is very low. You would also need to take into account the risk of big insurers' funds underperforming the market when evaluating risks.
    • Albermarle
    • By Albermarle 19th Nov 19, 5:50 PM
    • 1,859 Posts
    • 1,197 Thanks
    Albermarle
    • #9
    • 19th Nov 19, 5:50 PM
    • #9
    • 19th Nov 19, 5:50 PM
    Better to stick with big insurers’ funds then by the sound of it then
    One issue with this is you have limited choice ( only the insurers funds that you have the pension with )
    and they only offer open ended funds .
    If you want a wider choice then you have to go to a SIPP . If you stick with the well known providers then you should be OK .
    Nothing to stop you having a SIPP and a personal pension at the same time to hedge your bets .
    • SonOf
    • By SonOf 19th Nov 19, 6:41 PM
    • 1,892 Posts
    • 2,150 Thanks
    SonOf
    Thanks for the comments.

    Better to stick with big insurers’ funds then by the sound of it then.
    Originally posted by VDOT47
    Broadly speaking, the more advanced you go with the investment options, the more knowledge and understanding you need and the lower the FSCS protection becomes.

    So, sticking within your knowledge area, if you plan to DIY, makes perfect sense.
    • gm0
    • By gm0 20th Nov 19, 8:44 PM
    • 55 Posts
    • 49 Thanks
    gm0
    Wrapper and Funds
    Two things are going on

    First there is the wrapper element (e.g. occupational vs SIPP) - formally protected vs not so much (although as others have said there are bigger risks in life). For SIPP operationally it can make sense to split in 2 unless you have 12 months cash buffers/cheap credit lines and can wait out an IT failure+insolvency and recovery scenario without major worry. Some think this is worth it - there is a platform cost premium to pay for 2x SIPP fixed fees. Others think it unnecessary with the major players.

    Second topic is the funds - likely tied to a limited selection often mostly from the same outfit (L&G) for my example vs a very wide choice on the SIPP platforms

    So whether you keep a "better" protected wrapper depends upon whether you can

    A) draw the pension how you want from a legacy scheme which may not be modernised for FAD (phased or otherwise).

    B) invest the portfolio (in drawdown) in funds you like (cost, mix, performance, rebalancing mechanics) which matches what you want to do for DIY.

    I have a related scenario - I am seeking to validate point A with my former employers' scheme and working out what I want to hold so I can check if I can do that "close enough" or not in the selection on offer and what the cost compare is like if I did move instead to one (or max two SIPPS).
    • Albermarle
    • By Albermarle 21st Nov 19, 10:07 AM
    • 1,859 Posts
    • 1,197 Thanks
    Albermarle
    with my former employers' scheme and working out what I want to hold so I can check if I can do that "close enough" or not in the selection on offer and what the cost compare is like if I did move instead to one (or max two SIPPS).
    There are many different possible strategies . For example I have kept one ex employer pension scheme , as the charges my ex employer negotiated are low and the service/website is good .
    I transferred another more expensive one into a SIPP , mainly for the freedom to also invest in IT's , different funds etc
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