SIPP Investor Protection

Holding pension funds in a SIPP can offer a wealth of flexibility, but as it’s not your typical pension you may be wondering how safe your money is. The good news is that SIPPs are protected, though the extent of this varies according to the investments you hold.

Read on to find out more about the kind of regulatory protection you can benefit from, what to do if your pension provider goes bust, and how an independent pensions advisor can help you make sure your retirement savings are as secure as possible.

Are SIPPs safe for investors?

Broadly speaking, most money held within a SIPP will be safe, provided you invest sensibly and with regulated providers. However, this will depend on the type of investments you hold. This means you should always aim to invest in products and providers regulated by the Financial Conduct Authority (FCA) and covered by the Financial Services Compensation Scheme (FSCS).

What kind of protection do they have?

FSCS protection is the main form of security you’ll have for your SIPP. You’ll be covered under the scheme if a SIPP provider you’ve invested with fails, but it will only pay out if the company is unable to compensate you on its own.

Bear in mind that it’s only designed to compensate individuals, which means if your investments are pooled with others, the amount of compensation you’ll receive could be impacted. There’s an upper limit of £85,000, too (or £50,000 for some investments), and it will only cover products and providers regulated by the FCA.

Are there any scenarios where you wouldn’t be protected?

Unfortunately, yes. You wouldn’t be protected if you invest in non-standard, high risk and/or illiquid investments, as many of these aren’t regulated by the FCA and won’t be covered by the FSCS. This means if things go wrong, you won’t have any recourse.

Be particularly wary of being contacted about niche investments that seem too good to be true – such as foreign property, cryptocurrencies or financial instruments – as you may be dealing with scammers.

However, there is a caveat. If you invested in such companies or products on the advice of a regulated adviser, or if the company itself is authorised to give advice, you’d be covered up to £50,000 should things go wrong or the company went bust.

What about investment risk?

It’s important to note that there’ll always be investment risk no matter how much regulatory protection you have. The value of your investments can go down as well as up, past performance is not a reliable indicator of future returns and always be mindful of the risk you’re taking on when investing in anything other than cash.

How a pensions advisor can help safeguard your SIPP

An independent pensions advisor will be able to help you decide the best places to invest your money, which is the key way to ensure your SIPP is properly protected. They can advise on the right investments for your risk profile and will make sure that you’re only dealing with providers and products that are suitably regulated, reducing the possibility of losses further down the line.

We can put you in touch with an advisor who specialises in SIPPs and safeguarding the investments they hold – make an enquiry to get started. Crucially, all of the advisors we work with are regulated themselves, offering that extra peace of mind that your SIPP is safe.

What happens if your SIPPs provider goes bust?

While your initial thought will likely be the consequences of any firms you actively invest in going bust, there’s always the possibility – albeit slim if you’ve chosen wisely – of your SIPP provider failing as well.

Most SIPP operators are regulated by the FCA and also fall under the remit of the FSCS. This means that if your SIPP operator were to go bust whilst you were still making contributions, the value of your fund up to a maximum limit of £85,000 would be protected.

Once you’ve retired and, let’s say at this point you decide to purchase an annuity from a pension provider – this would be classified as a ‘contract of long-term insurance’. As a result, this means if your pension/annuity provider goes bust then 100% of your remaining fund would be protected, regardless of the value.

You’ll just need to make sure that your annuity qualifies as a “contract of long-term insurance”. You can confirm this by speaking to your provider. If that’s the case, you’ll be covered by the FSCS for 100% of your pension fund, with no upper cap.

This is also why choosing the right SIPP provider is important – particularly if you expect to make contributions well in excess of the protected limit of £85,000.