Fortress that protects £85,000 of cash AND investments
New rules will rescue investors if financial firms fail
MORE of investors’ money will be protected by an official Government-backed rescue scheme from tomorrow.
The Financial Services Compensation Scheme safeguards up to £85,000 of cash held in a bank, building society or credit union, and £50,000 worth of investments, in the event of a financial business going bust.
But from April 1, the limit for investments rises to £85,000 – matching the cash equivalent. The change is designed to make it easier for consumers to understand the scheme.
Mark Neale, chief executive of the FSCS, says: ‘Increasing the limit further strengthens financial confidence and means people will have protection for more of their money.’
WHAT IS PROTECTED BY THE NEW SCHEME?
MONEY held with banks and other financial organisations up to £85,000 per person, per institution is covered. For joint accounts it is £170,000.
If two separate institutions were to fail at the same time, a couple with assets up to the maximum protected limit in each could claim up to a total £340,000 from the FSCS. This is why people are advised not to hold individual savings of more than £85,000 with any one bank.
Some insurance policies are also covered if an authorised insurer goes bust. In many cases 100 per cent of the policy’s value is protected. This includes someone drawing on a personal pension via a life insurance contract such as an annuity.
Losses arising from bad advice about mortgages and endowment policies are also included.
WHEN CAN AN INVESTOR MAKE A CLAIM?
CUSTOMERS can make a claim if they bought pensions or investments based on bad advice, or if the products were mis-sold, mis-managed or mis-represented.
The protection kicks in when a company fails and cannot pay back customers. Some people may also find they are protected even if their case at first seems hopeless.
For example, a teacher in her 40s advised to move her pension in 2015 by an unauthorised financial adviser was rescued by the scheme. While working in Dubai she was cold-called by an adviser who invited her to a ‘no obligation’ meeting in a flashy hotel.
The adviser convinced her to move her workplace pension into a UK regulated self-invested personal pension offering low risk but high returns – something experts agree is impossible.
After a year the returns were not as expected and the teacher could not reach the adviser by phone.
By late 2016 she discovered the investment was high risk, mis-sold by an unauthorised adviser, had failed and her pension was worthless.
In January 2018, the FSCS declared three SIPP operators to be in default, including the one used by the teacher. She then received compensation from the scheme.
IF A FIRM GOES BUST, IS ALL OF MY MONEY SAFE?
TOMORROW’S increase in protection limits only applies to companies that are in default on or after April 1.
Anyone affected by a company going bust before that date is covered under the old threshold of £50,000 for investments.
Customers who received advice a long time ago but were impacted by a company’s failure after April 1 are protected by the new limits. The firm that advised the sale of a product must be authorised by a UK regulator – either the Financial Conduct Authority or the Prudential Regulation Authority.
HOW DO I MAKE A CLAIM?
IT is free to claim from the FSCS but first customers must check they are eligible. Do this by visiting fscs.org.uk. Customers who are accepted can track the progress of claims online. For further help call 0800 678 1100. HOW LONG WILL A CLAIM TAKE? CASH deposits with a bank, building society or credit union are repaid within seven days. Investment claims may take up to six months, or longer if the case is complicated.
WHAT ABOUT IF MY INVESTMENT BOMBS?
REFUNDS are not paid for every type of failure.
Claire Walsh, personal finance director at wealth manager Schroders, says: ‘The FSCS won’t compensate you just because your investments perform badly.’
Neither does it pay out to people who have lost money to a scam.
Walsh adds: ‘Always check any product you are considering benefits from FSCS cover. Unregulated investments are not usually covered.’
I’M OWED MONEY BUT FIRM IS STILL TRADING
FOR those with a grievance against an authorised business that is still operating, complain to the company first.
Failing that refer the case to the Financial Ombudsman Service, a free service that settles disputes between financial organisations and customers. Its compensation limits are also rising. From tomorrow, it can order businesses to pay redress of up to £350,000 compared to the current £150,000. This applies to wrongdoing by firms on or after April 1, not when a complaint is lodged.
Complaints about actions taken by firms before April 1 can only result in maximum compensation of £160,000 (up from £150,000).
Both of these limits will rise each year in line with inflation.
WHAT ELSE DO I NEED TO KNOW?
TEMPORARY high balances in a person’s bank account – for example, from an inheritance payout or proceeds from a property sale – are also covered up to £1million.
There is unlimited protection for personal injury compensation. The higher limit covers one-off life events for up to six months.
People should also beware of scams where fraudsters copy the FSCS logo on their websites to add an air of legitimacy.
To ensure a company is FSCS protected, check it is authorised on the Financial Services Register at register.fca.org.uk.
Watch out for fake emails circulating under the names of ‘Paulo Gatti’ and ‘Damian Trevor’, with the fraudsters claiming to be representing FSCS.
They are encouraging people to claim for compensation by first transferring money.