Protection schemes for SIPPs and Pensions

[Mr Noble]

Been reading up on this topic recently.

It seems that where UK regulated bank accounts are protected up to £85k per institution, there is not such a good level of protection for money we may hold in a self invested pension plan (SIPP)

My combined SIPP, ISA and share account with Hargreaves Lansdown, is currently worth a few times more than the £85k limit, and I also understand that pension monies are only protected upto £50k.


With this in mind, would it be wise for people in this situation to open multiple SIPPs with different platform providers and to invest into a different selection of fund providers or companies, in order to spread the risk?


It's all a little hazy as to what would happen if HL went bankrupt, or if, for example, Vanguard did, whom I have over £100k of my pension held with, in one fund!

[pacoryan]

It depends on what goes "pop", the pension provider or the funds, but yes, the funds are protected up to £50k each (90% of the claim for the provider going under). That's per investor, with the holdings in aggregate. Multiple SIPPs holding the same fund for the same investor would also be considered in aggregate.

If you had an adviser of course you could complain against them if a fund failed via the FOS and claim up to £150k. Odds are the complaint would be found in your favour.

Needless to say very few of my clients portfolios have over £50k in a single holding, but those that do are very aware of the protection limitations.

ETA The platform type arrangements operate on a nominee basis anyway so HL has no call on your capital, if they went under a new operator could take over. If the nominee gets defrauded that's a different matter. The compensation is arguably more relevant to Life Company Personal Pension schemes.

Edited by pacoryan on Thursday 16th January 13:10

[Cheib]

It's slightly tangental but clearly the SIPP providers have to have the cash that you either have in your SIPP or Pension on deposit somewhere. I checked with mine during the financial crisis what they were doing about their exposure to the banks. I was pleased to learn that having previously had all the money with one bank they had split it so it was divided between four banks.

[Mr Noble]

So in my case, and I guess that of many others, I would be covered for £50k for each institution I have rather than for each holding.

So if I had £40k in Vanguard US equity fund and £40k in Vanguard UK FTSE fund, I'd only be covered for £50 of the £80k...because both holdings are with the same company.


But


If I have £40k in Vanguard US equites and £30k in HSBC UK FTSE fund, I'd be covered for the whole £80k as they're separate companies?


This, of course is assuming that both Vanguard and HSBC went bust at the same time.



Im a little unsure about what to do now, as most of my SIPP is in one fund, the life strategy fund from Vanguard. I've got well over three times the threshold in there. If Vanguard went belly up or got defrauded, I'd be up the canal well and truly.


I guess my plan to start a 2nd SIPP with someone else like Interactive Investor, and invest in any non-Vanguard funds, is a good one.

Although if I understand correctly, the nominee situation means that I only need to split the funds within the HL platform, rather than start a 2nd SIPP on a competitors platform.......

Thanks for your help and advice btw.

Edited by Mr Noble on Thursday 16th January 14:45

[NatAsp]

One very important point here, which has not been mentioned, is that the assets of the fund house and the assets of their funds are held entirely separately. The fund house must appoint an independent custodian to hold the assets of their fund(s), and these assets are protected from the insolvency of the fund manager.

Therefore, if Vanguard are in default, their funds are not. The 50k only comes into play in cases of fraud.