You can be forgiven for worrying about the safety of your pension – you’ve spent a lifetime paying into it and want to be reassured it’s going to be there for you when you need it the most.
When company pension schemes fail
In recent years, we’ve seen the closure of several major British organisations, from leading high street retailers BHS and Toys R Us to construction giant Carillion. With each collapse, questions are raised around the stability and security of employees’ pension funds, many of whom have been paying into their defined benefit (DB) pensions for years, if not decades.
This uncertainty is further fuelled with reports from the Pension Protection Fund (PPF), which found approximately two-thirds of the DB pension schemes in operation in Britain are in deficit.
In the case of Carillion, the PPF will now be managing its DB pension schemes and for those already claiming their pension, they will be fully protected. However, for the rest, they are likely to only receive 90 per cent of their pension’s worth when they retire.
When SIPPs go wrong
In addition to the issues surrounding company DB pensions, there has been notable, high profile cases involving SIPPs, or self-invested personal pensions. Over 3,000 people invested in Ethical Forestry Ltd, much of that coming from self-invested personal pensions. However, in 2015, the business – which invested in Costa Rican plantations – went into liquidation, leaving investors concerned that they may never see their money, or pension pot again.
Following investigations, the Financial Services Compensation Scheme (FSCS) has confirmed it will pay compensation to eligible victims of Ethical Forestry. But even though Ethical Forestry Ltd has now been sold, concerns remain around its long-term stability and the payout investors should expect.
Cold calling sharks
Examples such as these have become a magnet for some opportunistic and often unscrupulous cold callers; the Pensions and Lifetime Savings Association recently found that one in six pension holders have been contacted by a company other than their own provider to transfer or change their pension.
So what safeguards are there to ensure you look after your pension now and it looks after you in retirement? It depends on your circumstances.
Some people opt to avoid pension schemes entirely and save for retirement through a bank account, however, as we’ve seen with Northern Rock, savings can still be insecure even there.
All regulated financial institutions in the UK are covered by the FSCS and as such, savers have up to £85,000 protected per institution.
Defined benefit pension schemes
If you’re an eligible member of a defined benefit pension scheme, the Pension Protection Fund (PPF) will protect you if the worst should happen and will pay differing levels of compensation depending on the individual situation.
Workplace pension auto-enrolment
Legally, employers must now auto-enrol you onto a suitable pension scheme, usually a defined contribution (DC) plan. Because these schemes are run by pension providers, your savings will be secure should your employer go bust. Should the pension provider fail to pay out, then the FSCS may offer compensation.
SIPPs are a higher-risk investment option when it comes to saving for retirement. As such, the main protection when investing in a SIPP is you. It’s down to your experience as an investor to ensure the important financial decisions you make are the right ones, and this can only be achieved by dedicating time and effort to regularly monitoring your investments.
Ensure any company or individual you speak to regarding your pension and investments is a certified professional able to provide sound financial advice based on their experience and knowledge of the market.
If you think you’ve been mis-sold a pension, or feel you weren’t made aware of the risks, then get in touch with our expert legal team to find out if you have a claim for compensation.