PPF vs FSCS protection: which safety net covers your pension

If your employer goes bust, whether your pension survives depends entirely on the type of scheme you are in. Defined benefit (final salary) pensions are covered by the Pension Protection Fund, not the Financial Services Compensation Scheme. The PPF is a statutory fund set up in 2005 to protect members of defined benefit schemes when the scheme's sponsor becomes insolvent¹. It does not protect defined contribution schemes, sometimes known as money purchase schemes².

The FSCS works differently. It pays compensation when a financial services provider fails and cannot pay back your money itself³. For pensions provided by UK-regulated insurers that qualify as contracts of long-term insurance, the FSCS covers the pension at 100% with no upper cap¹. For SIPPs, which are typically classed as uninsured pension schemes, the FSCS normally covers 100% of the claim with an upper cap of £85,000 per eligible person, per firm¹.

Neither scheme covers investment losses. If your pension investments fall in value because markets have fallen, that loss sits with you. Both schemes respond to a failure, not to poor performance.

Defined benefit pensions are covered by the PPF, not the FSCS

If you are in a defined benefit scheme, the FSCS does not cover the scheme itself. The FSCS protects the advice you received to transfer out of a defined benefit pension, but its protection does not include the defined benefit scheme⁶. The Pension Protection Fund protects these instead⁷.

Almost all defined benefit pension schemes are covered by the PPF, including the defined benefit part of hybrid schemes⁵. When your employer becomes insolvent and your defined benefit scheme transfers into the PPF, you become a PPF member⁸. The PPF then assesses the scheme to see if it can take it over⁹.

The PPF was set up in 2005 to protect you if your employer, and its pension scheme, can no longer afford to pay your promised pension¹⁰. It has consolidated over 2,000 schemes into itself and the Financial Assistance Scheme¹¹.

If you were already receiving a pension before the employer went bust, you will receive a pension from the PPF equal to 100% of your employer's pension on the date of its insolvency¹². The same 100% rate applies to members already retired at insolvency¹².

Which protection applies depends on your type of pension

FSCS 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 Financial Conduct Authority has authorised your pension provider¹³.

For pensions provided by UK-regulated insurers that qualify as contracts of long-term insurance, the FSCS covers the pension at 100% with no upper cap¹. Annuities also get FSCS protection, but with no upper limit¹⁴.

For SIPPs, the position is different. SIPPs are typically deemed uninsured pension schemes and are not covered in the same way¹. Where the FSCS can pay compensation for a SIPP, it normally covers the pension at 100% with an upper cap of £85,000¹.

The FSCS has a tool on its website that allows you to see what protection applies to your pension¹⁴. The FSCS can only protect you if the Financial Conduct Authority has authorised your pension provider, and protection varies depending on the type of pension product, with limits to the amount it can compensate¹⁵.

Defined contribution workplace pensions: what the FSCS can cover

If your employer goes bust, you will not lose your pension fund⁴. Pension companies should ringfence your pension savings, which means that if they were to go bust, your pension would be safe⁵.

If your pension provider was authorised by the Financial Conduct Authority and cannot pay your pension, you can get compensation from the Financial Services Compensation Scheme⁴. You can seek compensation from the FSCS if your pension provider goes bust¹².

Where the FSCS can pay compensation for a pension provided by a UK-regulated insurer, it covers the pension at 100% with no upper cap¹. If the firm failed after 1 April 2019 and it was your pension provider, the FSCS can normally pay 100% of your claim, with no upper limit¹.

If the pension provider was a SIPP operator and the firm failed after 1 April 2019, the FSCS can pay up to £85,000 per eligible person, per firm¹.

The FSCS pays compensation if your financial services provider fails and cannot pay back your money itself³. It can also pay compensation for insurance, investments, investment and pension advice, home finance advice, PPI and debt management plans and funeral plans¹⁶.

Defined contribution pensions are usually covered under the Financial Services Compensation Scheme. If your pension provider was authorised by the Financial Conduct Authority and cannot pay your pension, you can get compensation from the FSCS.

SIPPs: more investment choice, different protection questions

SIPPs allow you to hold multiple investments and products, so you can manage your pension fund yourself and have more control¹⁷. But SIPPs are considered riskier than most personal pension schemes, and were created to allow experienced investors the opportunity to take more risks¹⁷.

SIPPs are classed as uninsured pension schemes, as opposed to contracts of long-term insurance¹⁴. This means they do not sit in the same protection category as a pension provided by a UK-regulated insurer.

Where the FSCS can pay compensation for a SIPP, it normally covers the pension at 100% with an upper cap of £85,000¹. The FSCS can cover bad or misleading investment or pension advice, such as advice to transfer your pension into a self-invested personal pension, negligent management of investments, misrepresentation, or fraud¹⁸.

The FSCS has been able to protect the majority of investors who were advised by now-failed independent financial advisers or SIPP operators¹⁹.

If you are getting a pension, or thinking of changing it, the FSCS suggests asking your provider: Does FSCS protect my pension? How much of my pension pot is protected? Other than FSCS, are there any other protections available for this pension? Am I still protected if I buy an annuity? What if I buy other products with my pension pot? What would happen to your pension if something happened to your business? If I transfer money across from an existing pension, will that also be protected?²⁰

Who regulates your scheme: FCA for contract-based, TPR for trust-based

The Financial Conduct Authority regulates contract-based pensions, which involve a contract between an individual and the pension provider²². The Pensions Regulator regulates trust-based pension schemes, which have a board of trustees overseeing the scheme²².

The FSCS follows rules set by UK regulators, the Financial Conduct Authority and the Prudential Regulation Authority²³. The PRA is responsible for deposits and insurance rules, and the FCA is responsible for rules relating to other activities, such as pension advice and investments²⁴.

A provider is registered with the Financial Conduct Authority, or the Pensions Regulator if it is a stakeholder pension²⁵. The FCA regulates financial services firms in the UK, including regulating those who provide financial advice regarding pensions and Self Invested Personal Pensions²⁶.

When switching your pension or taking out a new one, search the Financial Conduct Authority register to check that it authorises your new pension provider²⁰. Check your provider is authorised by the Financial Conduct Authority or Prudential Regulation Authority²⁷.

The Pensions Regulator is responsible for authorising and supervising master trusts against five criteria²⁸.

Investment losses are not covered by either scheme

Neither the PPF nor the FSCS covers investment losses. Both schemes respond to a failure, such as an employer becoming insolvent or a provider going bust.

The Financial Services Compensation Scheme does not protect qualifying cryptoassets because they are not a specified investment under the UK regulatory regime²⁹. The FSCS, in relation to claims against failed regulated firms, does not cover investments in peer-to-peer loans²⁹.

If your bank goes bust then you will automatically get your money back, but that is deposit protection, not pension protection³⁰. The FSCS gives automatic protection up to £120,000 if your bank, building society or credit union fails³¹.

For SIPPs, where the FSCS can pay compensation, it normally covers the pension at 100% with an upper cap of £85,000¹. That covers the failure of the provider or bad advice, not a fall in the value of the investments held inside the SIPP.

Checking your scheme and where to get help

The FSCS has a tool on its website that allows you to see what protection applies to your pension¹⁴. Results are based on the FCA's Financial Services Register, which you can search yourself to check if your firm is authorised³².

Use the FSCS key questions to ask any pension provider about your FSCS protection²⁰. If you are talking to your financial adviser, ask: Are you an FCA authorised financial adviser? Does FSCS protect the advice you give about my pension if it turns out to be bad advice? How much of my pension pot is protected if I lose money because of the advice you give? What would happen if something happened to your business, and I lose money because of the advice you gave me?²⁰

If you have lost touch with a pension, use the Pension Tracing Service to find details of the person's personal or workplace pension³³.

The Pensions Regulator has a service for reporting concerns about your workplace pension²⁶. The Financial Ombudsman Service handles complaints about transfers from personal pension arrangements³⁴. The Financial Ombudsman Service also handles complaints about pensions organised by employers³⁵.

The FSCS can pay you compensation if your financial services provider fails and can't pay back your money itself³. If your claim is for a deposit or under a contract of insurance, see the PRA's Depositor Protection or Policyholder Protection rules³⁶.