How safe are pensions and annuities
The compensation limits for bank accounts and the like is going from £35,000 to £50,000, with £100,000 for joint accounts. This covers deposits with banks and building societies. Separate arrangements are in place if an insurance company, fund manager or financial firm collapses.
You may be let down by a financial adviser, for example, or insurance company, where compensation should be forthcoming. However, it is not always easy to understand which compensation arrangements apply.
Personal pensions and income drawdown plans are treated as insurance contracts, because they would normally include some life insurance. Compensation is paid in full for the first £2,000, then 90 per cent of any remaining balance.
These funds should be safe because they are held in trust. The only risk would be from embezzlement, or some administrative blunder.
Pension annuities, which pay your regular pension (your retirement income), are also insurance policies and are treated as such under the compensation rules.
However, with a with-profits annuity, only guaranteed bonuses already attached to the policy, not discretionary bonuses, will be included.
Where your savings are managed by stockbrokers, financial advisers or other investment managers and something goes awry, you can claim 100 per cent of the first £30,000 lost, then 90 per cent of the next £20,000, giving a maximum protection of £48,000.
There can still be reasons why a firm can collapse owing money. The majority of pay-outs under the investment rules relate to firms of financial advisers who have failed because of the inability to pay claims for mis-selling.
Tags: with profits annuity
