SIPP protection
Discussion
Does anyone know what protections exist for SIPPS/the investments in a SIPP and are they different for employer related schemes and for personal pensions?
I have a number of pensions with the largest being in an SIPP that was setup when my previous employer changed pension provider.
I’ve got over £600K in that plan and, having left that employer, I am looking to move the investments to a provider with a lower cost fee.
I can’t afford to lose the pension in a future financial crisis so don’t want to move it somewhere that it’s at greater risk.
Scottish Widows have a £16.50/month cap which looks okay and presumably as it’s a recognised name there should be less risk.
I have a number of pensions with the largest being in an SIPP that was setup when my previous employer changed pension provider.
I’ve got over £600K in that plan and, having left that employer, I am looking to move the investments to a provider with a lower cost fee.
I can’t afford to lose the pension in a future financial crisis so don’t want to move it somewhere that it’s at greater risk.
Scottish Widows have a £16.50/month cap which looks okay and presumably as it’s a recognised name there should be less risk.
There is effectively no protection for the type of loss or drop that Franco is asking about.
If there is a market crash and your pension/SIPP/savings pot is invested in equities then its value will drop. This has nothing to do with who is providing it, FSCS protection or ringfencing.
If you want safe then you need something fixed interest but there are a million studies of historical data that prove over the medium to long term, equities always come out on top even after dips and crashes.
The degree to which a fund drops will vary in a crash and most providers will ask your comfort level for risk or suggest that you consider it before investing but again this guarantees nothing and in many cases the "safe" performers are actually far more weak in the good times than they are protective in the bad times.
But remember that a loss is only crystallised when you cash it in. Unless you intend to buy an annuity on the day you retire, your fund will need to last you (hopefully) for decades on drawdown so there is time for it to work through the gains and losses that will inevitably come along.
If there is a market crash and your pension/SIPP/savings pot is invested in equities then its value will drop. This has nothing to do with who is providing it, FSCS protection or ringfencing.
If you want safe then you need something fixed interest but there are a million studies of historical data that prove over the medium to long term, equities always come out on top even after dips and crashes.
The degree to which a fund drops will vary in a crash and most providers will ask your comfort level for risk or suggest that you consider it before investing but again this guarantees nothing and in many cases the "safe" performers are actually far more weak in the good times than they are protective in the bad times.
But remember that a loss is only crystallised when you cash it in. Unless you intend to buy an annuity on the day you retire, your fund will need to last you (hopefully) for decades on drawdown so there is time for it to work through the gains and losses that will inevitably come along.
Yeah I think Franco needs to be clear which risk he's concerned about.
Stocks drop 50% or there's some sort of financial crisis? The impact depends what you're invested in and that's the case even with a pension with full insurance.
Your provider goes out of business? Your investments should be ring fenced though it may take time to sort out the mess.
Stocks drop 50% or there's some sort of financial crisis? The impact depends what you're invested in and that's the case even with a pension with full insurance.
Your provider goes out of business? Your investments should be ring fenced though it may take time to sort out the mess.
Steve H said:
There is effectively no protection for the type of loss or drop that Franco is asking about.
If there is a market crash and your pension/SIPP/savings pot is invested in equities then its value will drop. This has nothing to do with who is providing it, FSCS protection or ringfencing.
If you want safe then you need something fixed interest but there are a million studies of historical data that prove over the medium to long term, equities always come out on top even after dips and crashes.
The degree to which a fund drops will vary in a crash and most providers will ask your comfort level for risk or suggest that you consider it before investing but again this guarantees nothing and in many cases the "safe" performers are actually far more weak in the good times than they are protective in the bad times.
But remember that a loss is only crystallised when you cash it in. Unless you intend to buy an annuity on the day you retire, your fund will need to last you (hopefully) for decades on drawdown so there is time for it to work through the gains and losses that will inevitably come along.
Thanks but I was thinking about the provider going bust rather than investment risk. I m comfortable with investment risk but sickened by thought of losing everything (or a large amount of it) through picking a provider that is more vulnerable. Particularly in a 2008-2009 type scenario.If there is a market crash and your pension/SIPP/savings pot is invested in equities then its value will drop. This has nothing to do with who is providing it, FSCS protection or ringfencing.
If you want safe then you need something fixed interest but there are a million studies of historical data that prove over the medium to long term, equities always come out on top even after dips and crashes.
The degree to which a fund drops will vary in a crash and most providers will ask your comfort level for risk or suggest that you consider it before investing but again this guarantees nothing and in many cases the "safe" performers are actually far more weak in the good times than they are protective in the bad times.
But remember that a loss is only crystallised when you cash it in. Unless you intend to buy an annuity on the day you retire, your fund will need to last you (hopefully) for decades on drawdown so there is time for it to work through the gains and losses that will inevitably come along.
For me I am comfortable paying a bit more in fees if it means the provider is less at risk but equally I don t want to pay higher provider fees without justification just because I don t switch to a lower cost provider. Are the zero fee or low cost providers secure/stable? I m thinking the likes of ii, Trading 212 etc? What s to stop these (especially foreign based businesses) disappearing with your money? I m looking at Scottish Widows at £16.50 capped a month as it s a name that I ve heard of and would save me approx £400 a year preventing it helping to fund a financiers Ferrari.
My previous employer consulted an FA who advised (possible kickback to the employer?) to go with this provider for their employee s pensions even though the fees charged to the individual are higher than other providers. So all employees are opted into this provider without their input or consent. It s the kind of company where 90% of employees would never look at their pension so through inertia the provider is making a lot more money than they should in a fair system.
Now I m no longer with that employer I am free to move my funds and investments elsewhere that isn t such a rip off. However it will be with some caution as I m aware of the incompetence of these businesses and know it is well within their capabilities to mess up transfers. For context I ve successfully taken my current provider to the ombudsman twice for their incompetence.
It s a good example of how some firms/individuals become fabulously wealthy even though there are other businesses offering better value for money. An example of poor regulation leading to people getting ripped off by high fees because they don t understand the financial sector.
Edited by Franco5 on Saturday 31st January 08:50
Edited by Franco5 on Saturday 31st January 08:52
I would stick to the big providers i.e. Lloyds Banking Group, HSBC, II, Vanguard, Hargreaves Lansdown etc.
There are all manner of fund and ETF providers you've probably never heard of where if you dig a little you're buying baskets of swaps and derivatives and other stuff you've never heard of to "synthesise" an index.
Stick with very boring very big names doing very boring stuff you understand and whilst nothing is technically infallible you massively minimise the chances of encountering it IMO.
There are all manner of fund and ETF providers you've probably never heard of where if you dig a little you're buying baskets of swaps and derivatives and other stuff you've never heard of to "synthesise" an index.
Stick with very boring very big names doing very boring stuff you understand and whilst nothing is technically infallible you massively minimise the chances of encountering it IMO.
Franco5 said:
Does anyone know what protections exist for SIPPS/the investments in a SIPP and are they different for employer related schemes and for personal pensions?
I have a number of pensions with the largest being in an SIPP that was setup when my previous employer changed pension provider.
I ve got over £600K in that plan and, having left that employer, I am looking to move the investments to a provider with a lower cost fee.
I can t afford to lose the pension in a future financial crisis so don t want to move it somewhere that it s at greater risk.
Scottish Widows have a £16.50/month cap which looks okay and presumably as it s a recognised name there should be less risk.
I'm thinking of consolidating various small pots of pension money in an Interactive Investor SIPP. There are other low cost providers like AJ Bell who are also well regarded.I have a number of pensions with the largest being in an SIPP that was setup when my previous employer changed pension provider.
I ve got over £600K in that plan and, having left that employer, I am looking to move the investments to a provider with a lower cost fee.
I can t afford to lose the pension in a future financial crisis so don t want to move it somewhere that it s at greater risk.
Scottish Widows have a £16.50/month cap which looks okay and presumably as it s a recognised name there should be less risk.
Franco5 said:
Thanks but I was thinking about the provider going bust rather than investment risk.
Gotcha, I had misunderstood because of you saying about losing money in a financial crisis. Ring fencing is the answer you are probably looking for then. Most providers are broken up into a series of different legal entities, one does the advisory stuff and portfolio design, one does the main admin, another one actually holds the clients money etc. Essentially what it means is that if the provider goes bump your money doesn’t go with them.
We had this when Intelligent Money went down, a good number of PHers had pensions etc with them. Another company took on the client business and effectively nothing skipped a beat (lots of debate about it all on here but the money remained safe).
Others will be able to give a more precise explanation ut it’s my understanding that this is pretty a standard way for these firms to work.
The protections in a SIPP are completely different to those with your bank.
With a bank, your cash becomes part of the bank's assets which they invest for their own benefit within certain regulatory constraints. This is the reason why FSCS protection is so important - the government will step in if the bank can't pay you back.
Unlike banks, your cash in SIPP does NOT become part of the SIPP provider's assets. Instead it (and any shares you buy) is held by a custodian bank on your behalf and only you can decide how it should be invested.
Of course it is feasible for some kind of elaborate fraud to take place within a SIPP but using a well established SIPP provider is the best way to protect yourself as the government / FCA pressure from affected consumers would be greatest.
With a bank, your cash becomes part of the bank's assets which they invest for their own benefit within certain regulatory constraints. This is the reason why FSCS protection is so important - the government will step in if the bank can't pay you back.
Unlike banks, your cash in SIPP does NOT become part of the SIPP provider's assets. Instead it (and any shares you buy) is held by a custodian bank on your behalf and only you can decide how it should be invested.
Of course it is feasible for some kind of elaborate fraud to take place within a SIPP but using a well established SIPP provider is the best way to protect yourself as the government / FCA pressure from affected consumers would be greatest.
Client assets are segregated from company money. If the provider goes bust there are costs to wind up the business. Should there be insufficient cash within the business to cover these costs, then the FSCS kicks in. It's very rare for each client's share of the wind up costs to exceed the FSCS protection.
Large established providers who actually charge something for their accounts are profitable and keep large business cash reserves, so you're less at risk. Take a look behind the scenes of the dirt cheap providers and it's not all roses. They're going cheap only to try and gain market share against bigger players. It's not usually a sustainable business model to charge next to nothing.
Large established providers who actually charge something for their accounts are profitable and keep large business cash reserves, so you're less at risk. Take a look behind the scenes of the dirt cheap providers and it's not all roses. They're going cheap only to try and gain market share against bigger players. It's not usually a sustainable business model to charge next to nothing.
PistonHead007 said:
Client assets are segregated from company money. If the provider goes bust there are costs to wind up the business. Should there be insufficient cash within the business to cover these costs, then the FSCS kicks in. It's very rare for each client's share of the wind up costs to exceed the FSCS protection.
Large established providers who actually charge something for their accounts are profitable and keep large business cash reserves, so you're less at risk. Take a look behind the scenes of the dirt cheap providers and it's not all roses. They're going cheap only to try and gain market share against bigger players. It's not usually a sustainable business model to charge next to nothing.
Are you suggesting that if a SIPP was held with someone like Interactive Investor and they went bust, then you're not likely to get more than the FSCS protection back, even if you had £600k in there? What about ISAs?Large established providers who actually charge something for their accounts are profitable and keep large business cash reserves, so you're less at risk. Take a look behind the scenes of the dirt cheap providers and it's not all roses. They're going cheap only to try and gain market share against bigger players. It's not usually a sustainable business model to charge next to nothing.
rlg43p said:
PistonHead007 said:
Client assets are segregated from company money. If the provider goes bust there are costs to wind up the business. Should there be insufficient cash within the business to cover these costs, then the FSCS kicks in. It's very rare for each client's share of the wind up costs to exceed the FSCS protection.
Large established providers who actually charge something for their accounts are profitable and keep large business cash reserves, so you're less at risk. Take a look behind the scenes of the dirt cheap providers and it's not all roses. They're going cheap only to try and gain market share against bigger players. It's not usually a sustainable business model to charge next to nothing.
Are you suggesting that if a SIPP was held with someone like Interactive Investor and they went bust, then you're not likely to get more than the FSCS protection back, even if you had £600k in there? What about ISAs?Large established providers who actually charge something for their accounts are profitable and keep large business cash reserves, so you're less at risk. Take a look behind the scenes of the dirt cheap providers and it's not all roses. They're going cheap only to try and gain market share against bigger players. It's not usually a sustainable business model to charge next to nothing.
The risk is that the provider (who looks after the admin side of it and is the customer facing organisation) loses the customer data for whatever reason e.g. hacked data destroys all customer records, then FSCS protection only covers £85,000.
This is a very remote chance. Even if the provider went bankrupt, they should be able to pass on the management to another provider so your funds are safe because their going bankrupt is separate from where your funds are held.
As others above have said, stick with the big well established players if you want to be on the safe side. The new players e.g Invest Engine provide commission free holdings but are limited in funds and resources. Whereas the big old established players have vast funds and resources to manage their security e.g. Fidelity, Vanguard, AJBell, Hargreaves Lansdown, high street bank names etc.
Here's an explanation: https://www.hl.co.uk/security-centre/how-safe-is-y...
Gassing Station | Finance | Top of Page | What's New | My Stuff