What is the FSCS?

The Financial Services Compensation Scheme (FSCS) is the UK’s compensation fund for customers of authorised financial services firms. It’s an independent compensation scheme set up under the Financial Services and Markets Act 2000 (FSMA), and individuals can use it when a financial services firm is unable to pay claims made against it.

The FSCS is often referred to as a ‘last resort’ for customers when something goes wrong, and has been in operation since 2001. If a financial services company is authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA) and stops trading, goes bust or doesn’t have enough assets to pay claims made against it, the FSCS can help compensate its customers.

The compensation scheme is free of charge for individuals and the FSCS can provide different levels of compensation depending on the type of investment involved. The FSCS offers protection for the following, subject to limits:

  • Banks and building societies
  • Credit unions
  • Pensions
  • Mortgages
  • Insurance
  • Investments
  • PPI
  • Debt management

Source: https://www.fscs.org.uk/ (as at 16 March 2021)

What level of protection does the FSCS offer for pensions?

Generally, the FSCS can protect pensions that are provided by UK-regulated insurers, as long as they qualify as ‘contracts of long-term insurance’. A common example is an annuity, where you exchange the cash in your pension for a regular income from an insurance company. Where the FSCS can pay compensation, they will cover the pension at 100% with no upper cap.

The FSCS doesn’t protect workplace defined benefit pensions if they fail. These may be protected by the Pension Protection Fund (PPF).

Where an investment was held within a personal pension (e.g. a Self Invested Personal Pension), and the UK-regulated provider of the investment fails, the FSCS may be able to pay compensation up to £85,000 per pension scheme member.

If a UK-regulated adviser has given bad advice concerning a pension (e.g. to transfer it), the FSCS may be able to pay compensation up to £85,000. If the adviser is still trading, you can complain to the Financial Ombudsman Service.

Source: https://www.fscs.org.uk/what-we-cover/pensions/ (as at 16 March 2021)

PensionBee and the FSCS - more information

PensionBee is a proud member of the FSCS and several protections may apply to your pension with PensionBee, depending on your status as a customer. Please note that every claim against a failed company is individually assessed by the FSCS at the time of the claim and the rules and interpretation surrounding FSCS protection are subject to change.

While your money is invested in the PensionBee Personal Pension

The typical customer will spend the majority of their relationship with PensionBee invested in the PensionBee Personal Pension. During this period of time the money manager arranges for the safekeeping of the pension assets using global custodians, including Bank of New York Mellon (BlackRock), State Street Bank (State Street) and Citibank (Legal & General Investment Management).

The holdings in the PensionBee Personal Pension are structured as long-term insurance contracts, which means that if something happens to the money managers and the FSCS accepts the claim, they would cover the pension at 100% with no upper cap. Because PensionBee has arranged for the contracts with the money managers, it will pursue the compensation on your behalf.

While your money is with your old pension provider

The protection available to you with your old pension provider will depend on how their pension product is structured. You should direct your questions regarding their FSCS protection to them. There may be some FSCS protection available or none at all.

While your money is in transit between PensionBee and your old pension provider

The protection available to you while your money is in transit between pension providers (including between PensionBee and your old provider) will be subject to the available protections each pension provider has arranged for. You should ask your old pension provider what FSCS protection they have in place.

It is likely that prior to transferring your pension to PensionBee your old pension provider will move your pension into a clearing bank account in order to send it to the clearing bank account of PensionBee Trustees Limited. PensionBee operates a clearing bank account purely for the purposes of receiving your transfers or contributions and sending them on to the relevant money manager. It is unlikely that your pension money will be held in this clearing account for more than a few working days (unless we have not received sufficient information to identify the payment).

The clearing bank account is held separately from all other assets and bank accounts of PensionBee so as to be unaffected should anything happen to PensionBee. The clearing bank account is held with Barclays Bank.

The FSCS is generally able to cover deposits held in pooled client accounts so long as you’re ‘absolutely entitled’ to these funds.This is a legal test and depends on the terms and conditions of the arrangement in each case. The FSCS can’t compensate you for more than £85,000 in total per bank, covering all of your claims against the bank (including if you have personal deposits with the bank). It may take FSCS up to three months after a bank failure to pay compensation for deposits held in such accounts.

If PensionBee makes a mistake with your pension

PensionBee Limited is authorised and regulated by the Financial Conduct Authority. If PensionBee makes a mistake while administering your pension, you can complain directly to us using our Complaints Policy. If you are dissatisfied with our response to your complaint, you may refer your complaint to the Financial Ombudsman Service. If the Financial Ombudsman Service rules in favour of your complaint and PensionBee Limited has become insolvent, you may be able to receive compensation from the FSCS up to £85,000.

How does PensionBee’s FSCS protection compare to that of other personal pensions or SIPPs?

As many of our customers are moving away from workplace pensions (often structured as contracts of long term insurance) to join PensionBee, we consider it important to offer the same type of underlying long term insurance contracts that benefit from the 100% protection level.

Therefore, PensionBee offers the same type of institutional pension funds commonly found in the workplace. These are distinctly different from the typical retail funds found with fund supermarkets. It is highly unusual for another personal pension provider or SIPP provider in the market to offer investments structured as contracts of long-term insurance that benefit from this level of protection.

This means that when someone leaves a workplace scheme structured as a contract of long term insurance to join PensionBee, they are afforded the same type of FSCS protection once invested with PensionBee. We understand that this level of consumer protection is not commonly found in the retail market, and so it’s important to explain the distinction between these products and how it is possible we offer them.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 06-04-2024

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