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How is my pension protected?

Updated: Aug 18, 2022

Your pension is invaluable. After spending years working hard you want a pot that will allow you to have a comfortable retirement. Unfortunately, there are some horrible people out there looking to scam you out of your money. Furthermore, falling stock markets and bankrupt employers, are also causing problems for you to access your pension nest. So, just how safe is your pension?

1. How safe is my pension?

It is completely normal to feel nervous because we have all seen the adverts and sadly it does happen. It is something we hear all the time. But don’t let all the bad press you read affect your decisions.

There are vigorous protections in place to shield the vast majority of pensions. Up to £85,000 per person per institution is fully protected if your bank goes bust. This protection's provided by the UK's Financial Services Compensation Scheme (FSCS). This £85,000 limit also covers pensions and investments. The industry also has the Financial Conduct Authority watching over to make sure all practices are carried out with the highest degree of diligence.

You can rest assured, with these measures, that you are well guarded.

2. Has the pandemic affected my pension?

Stock markets crashed as a result. In the short-term volatility will remain. However, it is always best to play the long game; rushed decisions are unlikely to yield positive results. Investments generally rise over time, so you are best placed to sit tight and let your pension pot recover.

3. How is my workplace pension protected from employer insolvency?

DC Schemes: Usually, workplace pensions are Defined Contribution Schemes and are run by pension providers. Therefore, if your employer goes bust, you won’t lose your pension.

On occasion, there are some DC schemes that are run by a trust appointed by an employer and these are called ‘trust based schemes. If the company you work for goes bust, you will still get your pension, but perhaps not as much as you want as the schemes running costs will be paid directly from your pension pot.

4. DB Schemes

If you have a final salary scheme pension in the private sector, there could be knock-on implications on the pension fund if your employer goes out of business. The Pension Protection Fund was established to pay pensions in case of this.

Payments are usually as follows:

• 100% compensation if you’ve reached the scheme’s pension age

• 90% compensation if you’re below the scheme’s pension age

Therefore, there shouldn’t be too much concern as long as the government keeps the PPF funded. Should you have a public sector pension, funded by the taxpayer, then the scheme can’t go broke as payments are made from government spending.

5. What if my pension provider goes bust?

If your scheme is protected by the FCA, then you should receive compensation from FSCS. Should your pension provider goes out of business, the FSCS will attempt a pension transfer to move your funds to another pensions company. However, if that is not feasible, you will be entitled to claim back 90% of your savings.

6. Is my personal pension protected?

The FSCS protects up to £85,000 per person per institution Be aware, they don’t cover loses, it is merely a safety net should the pension or investment firm go bust. Should you have a stakeholder pension, this should be protected by the FSCS’s long-term insurance, which covers 90% of the pensions value. However, if you have a SIPP – and the money is held in cash – then this will receive the same exposure as a cash savings.

7. What if I lose money due to bad pension advice?

If you have received questionable pension advice, or been mis-sold to by an IFA, you could be entitled to claim compensation via the FSCS up the amount of £85,000 per person, per firm, as long as the provider is authorised regulated by the Financial Conduct Authority (FCA).

8. Am I protected from pension fraud?

Sadly, pension fraud occurs. Whilst there are so many credible IFAs, there are so people purely out to steal your life’s savings. You need to be on your guard and spot the signs of a scam to protect yourself. The Pension Advisory Service has four quick and easy steps to protect yourself.

  1. Unexpected pension offers – made online, social media or over the phone – should be declined.

  2. Always make sure you know who you are trading with before swapping pension arrangements. You can ring the FCA helpline on 0800 111 6768 or check the FCA register to see if they are a registered company.

  3. Take things at your own pace – if something seems too good to be true, it probably is. Take your time and check things out. Don’t be pressured into make any decisions.

  4. Think about getting impartial advice

In the event of fraud or theft and there is a shortfall in your company’s pension fund, you may be able to claim compensation from the FSCS. To gather full guidance on this – or if you want to submit a complaint about the way your workplace pension scheme is ran – make contact with Pensions Advisory Service or the Pensions Ombudsman.

Reeves Independent offer honest, transparent and clear advice. We put our clients at the heart of everything we do and strive to work alongside our clients so they can achieve their retirement goals.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

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