Financial Services Compensation Scheme (FSCS)
FSCS - Financial Services Compensation Scheme
FSCS stands for Financial Services Compensation Scheme. It is an independent compensation scheme formed under the authority of the Financial Services and Markets Act 2000. The individuals can use this compensation when a financial service firm can’t pay out its debt.
FSCS Explained
The FSCS (Financial Services Compensation Scheme) first started offering its services in 2001 and since then is known as the “last resort” for customers that can’t get what they are owed. For example, suppose a financial services company that works under the umbrella of the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA) is out of business or doesn’t hold enough assets to pay off its debts. In that case, the FSCS steps in and compensates its customers.
The FSCS offers its services free of charge to individuals, and it offers various levels of compensation based on the type of investment in question. The Financial Services Compensation Scheme offers protection for investments such as:
Deposits
Insurance policies
Insurance brokerage (for business from 14 January 2005)
Investment business
Mortgage arranging and advice (Applies to business from 31 October 2004)
Furthermore, in some instances, the FSCS may compensate you if the following criteria are met:
You were a client to a company that worked under the authority of the Financial Conduct Authority
You were a client of a company that worked under the authority of the Prudential Regulation Authority (PRA)
You have lost money as a result
How does the FSCS protect my pension?
The FSCS mainly deals with investment protection and does not cover all types of pensions. However, to have a defined contribution pension means that you will be working with a pension provider. A service provider also runs workplace and self-employed pensions. In any case, if the pension provider somehow manages to go out of business, and if it worked under the authorisation of the Financial Conduct Authority, you might be eligible for an FSCS compensation. If that criteria is met, the FSCS may compensate you for the full valuation of your pension pot.
On the other hand, if a trust selected by your employer manages your workplace pension, there is only a slim chance that the FSCS will protect your pension. Those that have a defined benefit workplace pension can’t count on protection from the FSCS either. Instead, they should get in touch with some other pension compensation scheme.
Those that use the defined benefit pension scheme or whose employers go out of business can claim protection from the Pension Protection Fund. If the claim is successful, the Pension Protection Fund will compensate you up to 100% of the value of your pot. The 100% compensation is awarded only to those that have already reached retirement age. If you haven’t reached retirement age, you are eligible only for up to 90% of your pot’s value.
Some also have a pension investment product, and when their provider is out of business due to any reason, the FSCS might get you compensated for the full value of your pot.
Even those involved in a Self-Invested Personal Pension (SIPP) can get a 100% compensation if some or all of their insurance, deposits, or investments fail. The only downside regarding SIPPs is that they get limited coverage by the FSCS that cannot exceed a value of ₤85,000.