Investor Compensation Limit - How Safe Is Your Money - Know Your Limits
Given the turbulent times we are currently in, we thought it helpful to remind you that different types of investment have very different investor protection limits and you need to be aware of them when making key decisions right now about your money.
There are two investor protection schemes in the UK, the Pension Protection Fund (PPF) for Company Pensions (www.pensionprotectionfund.org.uk) and the Financial Services Compensation Scheme (FSCS) for Banking, Insurance and Investment (www.fscs.org.uk).
A. Pension Protection Fund (PPF) - For Company Pensions
- 100% compensation for your company pension if you have reached the normal retirement date of the scheme
- 90% compensation subject to a cap of £32,761.07 pension income pa at age 65, if you have not reached the normal retirement date of the scheme (this figure increases each year with Consumer Prices Index (CPI) inflation.
Please note the PPF protects Company Pension Schemes only - for private pension schemes and annuities with insurance companies see the FSCS
B. Financial Services Compensation Scheme (FSCS) - Normally Personally, Per Person, For Individuals (not for Companies, Trusts or Organisations)
There are tree different levels depending upon whether you are invested in Banking, Insurance (including Private Pensions) or Investment. The limits differ as follows:
- Banks and Building Societies: The maximum compensation is £75,000 from 2016, £85,000 before that and previously £50,000 per individual per authorised institution irrespective of how many accounts you have with the company. If you have 10 accounts or 1 account with the same firm, it is still £75,000 (2016), £85,000 before. If you have accounts in joint names, it is still £75,000 each i.e. £150,000 jointly (2016) or £85,000 each/£170,000 joint for 2015.
- Insurance Companies: For Long term insurance investment funds, private pension funds, and general insurance e.g. Home, it is now 100% of the fund, previously it was 90% of the balance with no upper compensation limit. Compulsory Insurance such as third part Motor Insurance is still 100%.
- Investment Companies, Financial Advisers and Mortgage Advisers: A maximum compensation of £50,000 per individual per firm. Protection if your investment company went bankrupt or your financial adviser gave you negligent advice and then went bankrupt and could not meet advice compensation liabilities.
Tip 1 - Watch the Brands. Be careful of brands that are part of the same Bank. For example Bank of Scotland, Halifax and Bimingham Midshires are part of HBOS and part of Lloyds Banking Group. Banco Santander owns Abbey, Cahoot and now the Bradford and Bingley savings business and also now Alliance & Leicester. Natwest is owned by Royal Bank of Scotland and so on.
Contact us for a list of Banking Licences and their subsidiaries.
Tip 2 - Foreign Banks. Be careful of foreign owned banks trading in the UK. Icesave you now know is Icelandic. ICICI is Indian with a UK licence, Bank of Ireland was Irish but now has Bank of Ireland UK with a UK bank licence, Banco Santander is Spanish but has a UK licence. Not all foreign bank subsidiaries are covered by the UK compensation scheme. They are if they are a UK established bank in their own right such as ICICI, but some European Banks trading in the UK are protected by their own country investor schemes (which can be as low as 50,000€ but now proposed to increase to 100,000€ ) unless they have signed up to the UK FSCS ‘top-up’ scheme. Ask them or us if you are not sure.
Contact us for a list of those that have topped up in the UK.
Tip 3 - Spread your Money. Use the full range of bank account products, insurance investments and Investment company investments.
Tip 4 - Take Advice. You now know that financial planning is not just about hunting for the best rate it is also about the investor compensation limit and protection.
For more advice and information on Investor Compensation. Contact Us.