What happens if an investment platform or pension provider fails

If the platform you invest through, or the firm that holds your pension, goes out of business, the first thing to understand is that your investments and your cash are usually not the failed firm's property. UK rules require authorised firms to hold client assets separately from their own money, so in most failures the investments themselves are traced and returned, and only any shortfall, or losses caused by wrongdoing, lead to compensation. Where something has gone missing, the Financial Services Compensation Scheme (FSCS), the UK's statutory compensation scheme, can pay up to £85,000 per eligible person, per firm, for investment business¹.

That £85,000 is the headline number for investments, but it is not the whole picture. Cash held with a bank, building society or credit union, including some cash held through a platform, is protected up to £120,000 per person, per authorised firm, with temporary cover of up to £1.4 million for certain short-lived balances after events like selling a house⁴. Pensions and annuities follow different rules again: annuities bought under a life insurance contract are protected in full, while defined benefit workplace schemes are covered by a separate body, the Pension Protection Fund, rather than the FSCS⁴.

This page explains each of these in turn: what happens to your assets when a firm fails, what the FSCS pays and what it does not, how the claims process works, and how to check a firm is protected before you hand over money.

Your investments are held separately from the platform's own money

When you invest through a platform, your shares and funds are typically held in a nominee account: the investments are registered in the name of a nominee company operated by the platform, but they remain your property, held for you, and the platform's own creditors cannot claim them. The same principle applies to cash you hold for dealing: client money rules require it to be kept apart from the firm's own funds. This separation is the reason a platform's collapse is usually an administrative disruption rather than the loss of your portfolio. The insolvency practitioner appointed to wind up the firm identifies which assets belong to clients and arranges for them to be transferred to another provider or returned to you.

The FCA's conduct rules state this plainly for investments arranged through online platforms: protection from the FSCS, in relation to claims against failed regulated firms, does not cover poor investment performance¹. In other words, if your platform fails and your investments are all still there, the FSCS has nothing to pay, because nothing of yours has been lost. The scheme exists for the gap between what you are owed and what the failed firm can return.

There are limits to how far this comfort stretches. The FCA's own risk warnings on peer-to-peer lending, for example, state that if the platform fails, it may be impossible for you to collect money on your loan¹. Peer-to-peer agreements are not the same as holding shares in a nominee account: the money has been lent on to borrowers, and recovering it depends on the wind-down of the loan book. An Innovative Finance ISA does not change this, because, in the regulator's words, "An IFISA does not reduce the risk of the investment or protect you from losses, so you can still lose all your money. It only means that any potential gains from your investment will be tax free."¹ The same page of the FCA Handbook is worth reading for anyone holding peer-to-peer investments or other non-readily realisable securities arranged through a platform.

For conventional investments, the practical questions after a failure are how quickly records can be reconciled and whether anything is missing. That is where the FSCS comes in, and where the £85,000 limit matters.

FSCS protection: up to £85,000 per person, per firm for investments

The FSCS is the UK's statutory compensation scheme, funded by a levy on the authorised firms whose customers it protects, and free for consumers to use⁵. It covers seven broad types of business: deposits, insurance policies, insurance broking, investment business, mortgage advice and broking, debt management, and funeral plans³. For investment business, the limit is up to £85,000 per eligible person, per firm².

Three things about that limit are worth fixing in mind:

• It is per firm, not per account. All the eligible claims you hold with one failed firm count together towards one £85,000. Money with a different, separately authorised firm has its own limit.
• It is a cap on compensation, not a guarantee of your portfolio's value. The FSCS pays when a valid claim exists against a firm that has failed, for example because assets or cash have gone missing, or because of bad advice. It does not pay for markets falling.
• It depends on the firm being authorised. The FSCS only covers firms authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA) to do business in the UK, and the investment must have been a regulated product³.

The FSCS states that it may be able to compensate you if you have a valid claim against a firm that has failed, up to £85,000 per eligible person, per firm². What counts as a valid claim is the crux. If the platform held your shares properly and they can be returned, there is no claim. If client money has been misused, or an adviser gave bad advice and has since failed, a claim exists and the limit applies. The FSCS's own guidance on investment protection sets out the questions to ask a provider before investing: whether the product is covered by the FSCS, how much of your money is protected, and what would happen to your money if something went wrong with the provider's business¹⁰.

For claims about bad advice, the same £85,000 limit applies. Advice to transfer out of a defined benefit pension scheme, for instance, is covered up to the FSCS's £85,000 compensation limit for pension advice, provided the adviser has gone out of business and was regulated by the FCA at the time it gave the advice¹¹.

Pensions and annuities: protection depends on the type of plan

Pension protection is where the type of plan matters most, because different kinds of pension are protected by different bodies, in different ways.

Defined contribution pensions. If your employer goes bust, you will not lose your pension fund: the pot is held separately from the employer's business¹². For trust-based schemes, nidirect guidance for Northern Ireland notes that you will get your pension, but your pot might be reduced because administration costs are paid from members' pots¹². The position is the same in principle across the UK. If the pension provider itself fails, the FSCS may step in, but its protection varies depending on the type of pension product, and there are limits to the amount it can compensate¹³. The FSCS can only protect you if the FCA has authorised your pension provider¹³.

Defined benefit (salary-related) pensions. These are not primarily an FSCS matter. The Pension Protection Fund (PPF) is a statutory fund to protect members of defined benefit schemes if the scheme's sponsor becomes insolvent⁷. When the sponsoring employer becomes insolvent, the PPF assesses the scheme to see if it can enter protection¹⁴, and if the scheme does not have enough funds to pay the pension it promised, the PPF provides compensation in place of your pension¹⁵. Occupational pension schemes that fail may be protected by the PPF rather than the FSCS⁶.

Annuities. An annuity provided under a life insurance contract is covered by FSCS insurance protection, and the FSCS states that in that case "we will pay the entire claim"⁴. For firms that failed on or after 3 July 2015, annuities are protected at 100%¹⁶. There is no £85,000 cap on the annuity itself: the protection for insurance business is measured differently from investment business. To be eligible, the insurer that failed must have been regulated by the PRA¹⁶.

Public sector pensions. These follow their own rules. For example, any indexation built up in a Guaranteed Minimum Pension from April 1978 to April 1988 is protected and will be paid by your pension scheme¹⁷.

The FSCS's pension protection guide lists the questions worth asking a provider or adviser: whether FSCS protects your pension, how much of the pot is protected, whether other protections exist, whether protection continues if you buy an annuity, and what happens to money transferred in from an existing pension¹⁸.

When FSCS pays out, and when it does not

The FSCS is triggered when a financial services firm authorised by the FCA or the PRA is placed into an insolvency process, such as administration or liquidation, and cannot repay its customers⁵. It pays compensation when your provider fails and cannot return your money itself²⁰. For deposits, the position is clear-cut: if your bank goes bust, you automatically get your money back, up to the limit²¹.

For investments, the sequence is different. The insolvency practitioner first establishes what client assets exist and returns what can be returned. Only a shortfall, or a claim arising from the firm's conduct, leads to FSCS compensation. The FSCS works closely with the administrator or liquidator to verify eligible claims¹⁹, and where no liquidator or administrator is appointed, for example with a very small firm, it works with the firm's own officials to obtain records, both paper and electronic¹⁹.

The FSCS does not pay in several situations:

• Poor investment performance. The FCA's rules state that FSCS protection, in relation to claims against failed regulated firms, does not cover poor investment performance¹.
• Unregulated products and unauthorised firms. The FSCS can only protect you if the firm was authorised by the PRA or the FCA, and if your investment was a regulated product⁹.
• E-money and payment services firms. The FSCS cannot protect you if an e-money firm or payment services firm fails²². Money with such a firm may be held safe at a different bank under e-money rules, but if the provider failed you would need to make a claim to the administrator²⁴.
• Most scams and fraud. The FSCS states that in most situations it cannot compensate people for money lost to scams or fraud, the exception being where bad advice from an authorised financial adviser led you into something that turns out to be a scam²⁵.

One point of timing matters for cash held through intermediaries. The FSCS notes that it would not be able to confirm the eligibility of specific deposits until the point of the firm failing, for deposits held via wealth management companies or online platforms²⁶. Eligibility is assessed at failure, not in advance.

Cash held on a platform: up to £120,000, with temporary high balance cover

Cash waiting to be invested, or held for withdrawals, is treated as a deposit rather than an investment, and deposit protection runs to £120,000 per person or company, per authorised firm³. The FSCS can pay back money held with a failed bank or building society up to that limit²⁸, and it applies across all the accounts you hold with the same institution.

Above £120,000, there is temporary protection for certain exceptional, short-lived deposits that result from major life events, such as the proceeds of selling a house. The Bank of England's explainer states that this temporary protection will be up to £1.4 million in most cases, for up to six months above the £120,000 limit, for certain types of deposits classified as temporary high balances⁵. The FSCS's own deposit limit page states that it covers temporary high balances of up to £1.4 million²⁷. Some FSCS materials state the temporary cover as up to £1 million for up to six months²⁹, so the documents differ on the ceiling; the higher figure of £1.4 million appears in the Bank of England's explainer and the FSCS's deposit limit page⁵.

If a firm fails and you need to make a claim for deposits above £120,000, you will need to provide written evidence that your deposits qualify as a temporary high balance³. MoneyHelper gives an example of the kind of event that qualifies: the FSCS can compensate up to £1.4 million if the account was credited in the last six months, for example after selling a home²⁴.

Where cash is held through a platform or savings marketplace rather than directly with a bank, the question is whose deposit it legally is. If an aggregator deposited your money with a regulated bank that then fails, it is likely that the FSCS will protect it²². If the aggregator itself is not a deposit-taker, the protection depends on the underlying bank's authorisation, which is why the FSCS says eligibility cannot be confirmed until the point of failure²⁶. The page on cash held on investment platforms covers how client money is treated in more detail.

How to claim, and how long it takes

In most circumstances, customers will not need to make a claim at all. The FSCS works with the failed firm, the FCA and the insolvency practitioner to identify customers and pay what is owed⁸. For bank, building society and credit union failures, you do not need to make a claim: the FSCS will return your money automatically, up to the compensation limit³⁰. For firms that failed after 1 April 2019 in the debt management sub-scheme, the FSCS likewise states that you do not need to do anything, as it will compensate you automatically³¹.

The process from a firm's failure to the return of assets and any FSCS compensation.

Where a claim is needed, the process runs through the FSCS's claims pages, and the scheme verifies eligible claims with the administrator or liquidator¹⁹. Timing varies by product:

The FSCS states that it aims to pay claims as soon as possible, but the time it takes varies depending on how quickly the insolvency practitioner can reconcile the failed firm's data³¹. Where compensation is calculated rather than a simple return of money, for example for a funeral plan, the FSCS works out the amount by reference to what it would cost to buy the same plan on today's market⁸.

Claims that are not eligible for FSCS compensation, for example because the claimant was a large business or the risk was not based in the UK, are recorded with the insolvency practitioner and may receive a dividend from the wind-up of the firm's assets if one can be paid³⁵.

Where FSCS protection does not apply

The boundaries of the scheme matter as much as its limits. The clearest cases where the FSCS cannot help:

• Unauthorised firms. The FSCS only covers firms authorised by the FCA or PRA³. Dealing in investments is a regulated activity in the UK, so genuine trading platforms require authorisation from, and are regulated by, the FCA³⁶. A firm operating without authorisation is outside the scheme entirely.
• Unregulated products. Most cryptoassets, including Bitcoin and Litecoin, are not FSCS protected because they are not regulated²⁵. The page on cryptoassets covers the rules in detail.
• E-money and payment services firms. These are not covered by deposit protection²².
• Poor performance. FSCS protection does not cover your investments falling in value¹.
• Most fraud losses. The FSCS cannot compensate for money lost to scams in most situations, the exception being bad advice from an authorised adviser²⁵.

Insurance bought through a failed broker or adviser has its own rates: compulsory general insurance is protected at 100%, as are employers' liability claims, while all other general insurance is protected at 90%³⁷. Some classes, including marine, aviation and credit insurance, are not eligible for FSCS protection at all³⁷.

The FSCS's guidance on checking protection suggests asking any firm directly: is this investment product covered by FSCS, how much of my money is protected, and what would happen to my money if something went wrong with the provider's business¹⁰. For advice relationships, the questions extend to whether the FSCS protects the advice itself and what happens if the firm gives bad advice and then fails¹⁰.

Claiming is free: spotting FSCS impersonation scams

The FSCS is funded by the financial services industry and is free to use³. Its own statement on claims management companies is blunt: the service is free, and customers keep 100% of any compensation owed when claiming directly⁸. A claims management company will typically charge a share of a compensation payment for a claim you could make yourself at no cost.

That freeness is also what scammers exploit. The FSCS has warned that telephone numbers can be spoofed with fake caller ID, so a call that appears to come from the FSCS may not, and it has seen a rise in this sort of scam²⁵. In 2023 the FSCS reported it was reporting at least one phishing attempt and one fake investment website per day, and said it was issuing cease-and-desist letters to scammers who use its logo or fake its protection³⁸. It has also warned of fraudsters emailing consumers while claiming to represent the FSCS, asking them to share personal data³⁹.

One further right is worth knowing. If your claim is rejected, or until you accept the FSCS's compensation, you are free to pursue the firm or any third party yourself². Accepting compensation settles the claim, so it is worth being sure of the position before accepting if the amount is disputed.

Checking a firm is authorised before you invest

Protection is far easier to confirm before you invest than to reconstruct after a failure. The FSCS's guide to investment protection sets out the steps: first, check your provider is authorised by the FCA, using the FCA Register; second, find out whether the particular activity the firm is carrying out for you is regulated by the PRA or the FCA³². The FCA Register shows a firm's status; if it shows "authorised", the FSCS may be able to compensate if the firm fails³⁷.

The same check applies to pensions. When switching your pension or taking out a new one, the FSCS advises searching the FCA Register to check that it authorizes your new pension provider¹⁸. The Financial Ombudsman Service also points consumers to the FCA's firm checker to confirm a firm is authorised and help avoid scams before considering an investment, pension opportunity, loan or other financial service³⁸.

Two practical habits follow from the rules:

1. Check the firm, not just the brand. Authorisation attaches to the legal firm, and the FSCS limit is per authorised firm. The FSCS's protection checker lets you look up a firm and see what may be covered²².
2. Ask the questions the FSCS itself suggests. Whether the product is covered, how much is protected, and what happens if the provider fails¹⁰. A firm that cannot answer them clearly is telling you something.

The FSCS notes that it cannot protect everyone in every circumstance, and that its protection depends on the firm being authorised and the product being regulated⁹. The pages on how investment platforms work, investment scams and consumer protection in UK financial services cover the surrounding ground.