Pensions can come in multiple forms. There are state pensions and private pensions available, with private pensions having a huge level of variety. Some of the most prevalent pensions include defined contributions which should be relatively shielded.
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The government details that defined contribution pensions are usually run by pension providers and not the employers themselves.
As such, a person should not lose their pension pot if their employer goes under.
There could be instances where a pension provider itself could go bust however and in those instances a pension pot could be affected.
Thankfully there are procedures in place for these types of predicaments.
So long as the pension provider was authorised by the FCA compensation can be sought from the Financial Services Compensation Scheme (FSCS) if the provider cannot pay.
The FSCS website explains: “Generally, FSCS can protect pensions that are provided by UK-regulated insurers, as long as they qualify as ‘contracts of long-term insurance’.
“A common example is an annuity, where you exchange the cash in your pension for a regular income from an insurance company.
“Where FSCS can pay compensation, we will cover the pension at 100 percent with no upper cap.
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“We cannot confirm whether individual plans with specific providers would be classed as “contracts of long-term insurance’” or not – you would need to speak to your provider directly.
“We can’t protect Occupational Pension Schemes (OPS) if they fail.
“These may be protected by the Pension Protection Fund.”
Many modern pensions are invested in the markets and hold assets such as shares and bonds.
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These pensions are likely to see the most damaging results as coronavirus has drastically affected investments across the globe.
Fortunately, while the markets are unpredictable and often risky, certain amounts of investment failures are protected by the FSCS.
As it details: “Where an investment was held within a personal pension (e.g. a SIPP) or a Defined Contributions OPS, and the UK-regulated provider of the investment fails, FSCS may be able to pay compensation up to £85,000 per pension scheme member.
“Where the failed investment was held within a Defined Benefits OPS, the pension trustee(s) may be able to make a single claim for compensation of up to £85,000.”
Losses from poor advice could even be clawed back up to a certain limit. If the adviser gave bad advice concerning a pension (such as a poorly planned transfer) the FSCS may be able to pay compensation up to £85,000.
Rules concerning pensions can be very complex and difficult to understand but there is support available.
Free impartial advice can be sought from organisations such as the Money & Pensions Service, Citizens Advice and the Money Advice Service.
On top of this, tailored advice can be received from private financial planning companies but this can be costly.
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