You might know about the £85,000 limit for compensation on savings deposits, if a bank, building society or credit union goes bust.
But did you know that the Financial Services Compensation Scheme (FSCS) also protects pensions?
How does FSCS protect pensions and annuities?
The FSCS covers pensions and annuities, which are defined as “long term insurance contracts” to 100 per cent of the claim, with no upper limit. You can read more about this protection here.
How does FSCS protect bad advice
If the claim involves mis-selling of long term insurance, then FSCS deals with it as investment advice. For example, if someone receives bad advice to transfer their retirement to a FSCS protected personal pension, then FSCS protects the claim up to £85,000.
How does FSCS protect Self-Invested Personal Pensions?
If the provider of a product held within a Self-Invested Personal Pension (SIPP) fails, the FSCS compensation limit depends on the type of product held within the SIPP. For investment-based products, the limit is £85,000. There have been a number of cases of misselling of high-risk, illiquid investments within SIPPs, where the FSCS has paid out compensation. You can read about these on page 24 of the latest Plan & Budget, a document published by the FSCS, here.
FSCS cover for pensions could be critical to the choices you make with your retirement savings when it comes to choosing a home for them, according to new research* published by FSCS.
The report shows that awareness of FSCS made people more likely to choose to take financial advice and more likely to take out retirement products that are protected by the Scheme.
In the new world of “pension freedoms”, where you have a much wider range of financial products to choose from for your retirement savings than ever before, knowing which options are covered fully in the event of a firm failure, which are covered to a limited extent and which not at all, seems more important than ever.
However, additional FSCS research**, showed many advisers are not informing their customers about compensation. A mystery shopping exercise showed that among advisers and firms, the awareness of FSCS limits was low overall, with consumers routinely being given the wrong information, or no information, about FSCS.
**Research: The need to know:FSCS protection makes a difference - An executive summary of the findings from pensions research and mystery shopping commision by the Financial Services Compensation Scheme
Whether you do or don’t know about FSCS cover for pensions could be critical to the choices you make with your retirement savings when it comes to choosing a home for them.