PIBS: Protection, Tax and Selling Them

PIBS are permanent shares issued by UK building societies. They pay a fixed coupon, which makes them behave in a way that looks like a bond, but they are not deposits and they are not covered by the Financial Services Compensation Scheme. If the building society that issued them fails, PIBS holders rank below other creditors and can lose money.

The distinction that matters most to a saver is this: money in a building society savings account is a deposit, protected up to £120,000 per eligible depositor, and the FSCS returns it automatically after a failure¹. Money in that same society's PIBS is a shareholding, sits outside the scheme, and is repaid only after everyone else has been paid.

Tighter capital rules that took effect on 1 January 2014 changed how PIBS count towards a building society's regulatory capital, and they were phased out of that role. Existing PIBS were not cancelled, but the rules around them changed.

What PIBS are: permanent shares issued by building societies

PIBS are a type of instrument issued by UK building societies³. They are permanent in the sense that they have no fixed repayment date: the society is not obliged to redeem them at a set point, and the money raised stays with the society as part of its capital base. In return, holders receive a fixed coupon, which is why they are often discussed alongside bonds and appear on the corporate bond sections of investment platforms.

Building societies are mutual organisations owned by their members rather than by shareholders, which is why they raise this kind of capital through instruments like PIBS rather than ordinary equity. They remain a visible part of the high street: building societies operate through approximately 1,300 branches across the UK⁶, and their branches generate £7.6 billion in social value annually according to the Building Societies Association⁷.

For a reader who has come across PIBS on a platform or in a portfolio, the practical points are that they are long-dated or perpetual, they pay a fixed income, and their market value moves with interest rates and with how the market views the issuing society. None of that is the same as a savings account, and none of it carries deposit protection.

PIBS are not technically bonds

PIBS are often described as bonds, and platforms sometimes list them alongside corporate bonds, but technically they are not bonds and usually carry a degree of subordination, meaning they rank below other debt owed by the issuer in the event of default. They behave in a manner similar to bonds because of their fixed coupons³.

That distinction is not pedantry. A conventional bond has a defined maturity and a defined place in the queue of creditors. PIBS have neither in the same way. The fixed coupon makes the income look predictable, but the capital is not.

The same logic applies across other instruments that look like one thing and are legally another. Qualifying cryptoassets, for example, are outside the FSCS because they are not a specified investment under the UK regulatory regime⁸. The test is not what an investment looks like or how it is marketed, but whether the activity falls within the regulated activities the scheme covers.

PIBS rank below other debts if a building society fails

Subordination determines who gets paid and in what order. If a building society fails, ordinary creditors and depositors come first, and PIBS holders come near the end of the queue. In a failure where there is not enough money to go round, PIBS holders can lose some or all of what they put in.

Deposits work differently. The FSCS deposit sub-scheme covers claims made against failed deposit-taking firms, for example banks, building societies and credit unions⁹. It is triggered when a firm authorised to accept deposits by the FCA or the PRA goes out of business, for example if it goes into administration or liquidation, and is unable to repay its depositors⁹. Compensation is paid within seven working days of a bank, building society or credit union failing, though more complex cases, including temporary high balance claims, take longer¹.

The FSCS was set up by parliament to pay back money to eligible people when their financial firm fails, and it is funded by the financial services industry². It is independent, with its own board, although the Financial Conduct Authority and the Prudential Regulation Authority oversee its operation¹⁰. The regulators, not the scheme, set the compensation limits and the rules⁴.

FSCS protection and PIBS

The FSCS covers a defined list of products: banks and building societies, credit unions, pensions, investments, mortgages, insurance, debt management, PPI and, from 29 July 2022, funeral plans¹¹. PIBS are not on that list, and the scheme does not protect them.

Two conditions decide whether the FSCS applies at all. Protection applies only where the authorised firm's activity is regulated by the PRA or the FCA¹², and it applies at firm level, which means it may be shared across brands operating under the same authorisation¹³. A reader holding PIBS through a platform should not assume the platform's own FSCS cover extends to the PIBS themselves: the scheme looks at the activity that caused the loss, not at where the investment is held.

Where the FSCS does apply, the limits vary by product. Deposits are protected up to £120,000 per eligible depositor at banks, building societies and credit unions authorised by the PRA and FCA⁵, and up to £240,000 of savings in a joint account, covering each named account holder¹⁴. Most types of general insurance are protected at 90%, without an upper limit¹⁵, and employers' liability claims are protected at 100%¹⁶. Mortgage advice is covered¹⁷, as is PPI¹⁸, and the deadline for PPI claims of 29 August 2019 does not apply to FSCS claims, because that deadline applied to claims against companies still trading while the FSCS compensates when firms have failed¹⁸.

Some things sit outside the scheme entirely. Credit insurance, aviation, marine and contracts of reinsurance are not eligible¹⁹, and the FSCS does not protect money a debtor pays under an individual voluntary arrangement arranged by insolvency practitioners who are not regulated by the FCA, or debt advice²⁰. Payment services are not covered either: the FSCS applies only to certain types of activity and does not cover payment services²¹.

Are PIBS the same as savings accounts?

No, and the difference is the whole point of the protection question. A savings account is a deposit. PIBS are shares. The two are treated differently on a failure, taxed differently, and priced differently.

Deposit protection has a limit and a structure. Money held with banks in the same banking group that share a banking licence is treated as one bank, with the £120,000 limit applying across all accounts¹. That is why a saver with accounts at several brands under one licence has one limit, not several. Building society savings products, including cash ISAs, fixed rate bonds, regular savings accounts and easy access savings accounts, are covered by the FSCS²².

PIBS holders have none of that. There is no automatic payout, no seven working day timescale, and no £120,000 backstop. The holder's claim is against the society as an issuer of subordinated capital, and it ranks behind the claims of depositors and other creditors.

How tighter capital rules changed PIBS

The EU Capital Requirements Regulation came into force on 1 January 2014, tightening the rules on what counts as regulatory capital, so PIBS were phased out from regulatory capital³. The instrument itself was not abolished and existing PIBS were not cancelled, but their role in a building society's capital base changed from that date.

The direction of travel in capital rules has been towards larger and higher-quality buffers. In the UK debate around the same period, RBS, Lloyds and HSBC were expected to have to be up at about 9.5 per cent or 10 per cent once the 4.5 per cent minimum, the 2.5 per cent conservation buffer and the global SIFI surcharge were allowed for²³. Instruments that counted towards capital before the change were progressively displaced by ones that met the new tests.

For a PIBS holder, the practical consequence is that the instrument's regulatory purpose has changed even though the contractual terms have not. The coupon still arrives, the capital is still subordinated, and the FSCS still does not cover it. What changed is how the issuing society is allowed to count it.

Selling PIBS and where to get help

PIBS are traded instruments, and selling them depends on there being a buyer. Prices move with interest rates and with the market's view of the issuing society, so a holder who sells before the society redeems may get back less than they paid, or more. There is no deposit guarantee standing behind the sale price.

If something goes wrong with how an investment was sold or managed, the Financial Ombudsman Service can look at complaints about firms it covers. The ombudsman's approach in related areas shows how it handles cases where a product's effect has to be unwound: where a debt would ultimately have been written off anyway, it will usually tell the business to restructure the loan to remove the effect of PPI, reducing the amount written off to what it would have been without PPI, and offset remaining compensation against the remaining written-off amount²⁴. That is a worked example of how redress is calculated, not a rule about PIBS.

Free, impartial help is available. The FSCS publishes a protection checker that shows whether a firm and an activity are covered¹³, and a guide to investment protection²⁵. MoneyHelper and the debt advice charities can help with the wider picture, and the ombudsman service handles complaints that a firm has not resolved.