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How is your SIPP (self invested personal pension) protected?

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Self invested personal pensions, or SIPPs, are DIY pensions that give you more flexibility and choice about how and what you invest your retirement savings in. How is your money protected should an investment firm or the SIPP provider go bust.

If the SIPP provider goes bust

When you buy a SIPP, you buy it from a SIPP provider. This firm sets up the SIPP wrapper for you. You may have to pay the provider a set-up fee and ongoing fees if you buy or sell shares or invest in funds. How your SIPP money is protected if the SIPP provider went bust would depend on the type of company it is.

  • If the SIPP provider is a pensions company: You are covered by the Financial Services Compensation Scheme (FSCS), which is designed to pay out in the event of a financial firm going bust, for 100% of the value of your SIPP (if the firm failed after 1st April 2019), if the product you hold is an insurance contract.
  • If the provider is a specialist SIPP company: In this case you are covered by the Financial Services Compensation Scheme for a maximum of £85,000 per person, per firm.

SAVVY TIP: This doesn’t mean you would only be able to get back £85,000 if your SIPP provider went bust as money must be held in a separate ring-fenced account and cannot be touched by creditors. So if the SIPP provider did go bust, your SIPP money should not be at risk. However, there’s no watertight guarantee that your money could never be at risk if, for example, a rogue provider flouted the rules.

You can find details of what the FSCS will cover if a firm went bust before 1st April 2019 on its website.

Investments within a SIPP

While the risks to your SIPP investment might be relatively low because of the SIPP provider going bust, it’s not the only situation where your money may be at risk. If the company providing the investments you put your money into (whether that’s a fund, shares or cash) goes bust, it’s worth knowing how you would be covered.

  • If you have some SIPP money in cash: your cash deposits within a SIPP would be covered up to a limit of £85,000 – as is the case with cash in a bank or building society account. However, if you have any savings (outside the SIPP) with the same bank or building society, this would be included in the £85,000 limit. Some banks based in the EU may be only covered by their home country’s deposit protection scheme. In this case, you wouldn’t be covered by the FSCS.

SAVVY TIP: You may be entitled to less than £85,000 compensation if the banks that you have savings with share a banking licence/authorisation with the regulator. For example, HSBC and First Direct share a banking licence, as do Halifax, Bank of Scotland and BM Savings. Savings accounts for the AA and Saga are also come under the Halifax/Bank of Scotland FSCS limit.

  • Unit trusts, investment trusts and other investments: The assets should be ring fenced, so you should not need to make a claim under the FSCS. If you needed to, the compensation limit would be £85,000.
  • Investments issued by an insurance company: Here the FSCS limit would be 90% of the value of your investments if the product in question was an insurance-based one.
  • Unregulated investments: Some financial advisers have sold investments that are not regulated by the Financial Conduct Authority. These unregulated investments aren’t covered by the Financial Services Compensation Scheme if you were to buy them as standalone products, but if you bought them within a SIPP, the advice you would have received would be regulated, so you could claim compensation from the FSCS if the investment provider went bust.

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