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Barnett Waddingham
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Financial Services Compensation Scheme – why the reduction in deposit protection?

Published by James Jones-Tinsley on

Currently, SIPP and SSAS trustee deposits with banks and building societies are guaranteed and protected up to a limit of £85,000 under the Financial Services Compensation Scheme (FSCS).

That limit will be reducing to £75,000 with effect from 1 January 2016.

Why is this reduction happening?

This isn’t a change of heart following a review of UK banks and building societies, but arises from the European Union Deposit Guarantee Schemes Directive.  This directive is designed to harmonise the limit across Europe at €100,000, with £75,000 now being the broad sterling equivalent.

You may therefore wish to review the balances within your SIPP or SSAS deposit account(s), ahead of the reduction from the start of next year.

“According to HM Treasury*, whilst pension schemes may well have deposits in excess of the new limit, it is argued that £75,000 will still protect 95% of savings, as the majority of the population have £50,000 or less in savings.”

Whilst the scope of the compensation has been widened slightly, (for example, to cover larger companies), one particular change may benefit a pension scheme:

Where there is a short term figure in excess of the new limit, it may be deemed to be an eligible deposit when categorised as a ‘temporary high balance’.  This may arise where, say, an investment has been sold and the proceeds are placed on deposit.  That balance should have FSCS protection up to £1 million for up to six months.  This protection was introduced from 3 July 2015.

However, please note that a deposit may be excluded from protection if the holder and beneficial owner of the deposit have never been identified by the bank or building society in accordance with anti-money laundering requirements.

In addition, work undertaken by Barnett Waddingham to reduce deposit balances down to the new limit will be charged in accordance with our current fee schedules for your SIPP or SSAS.

More details regarding the reduction are available on the FSCS website

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About the author

  • James Jones-Tinsley

    James assists colleagues in both the SSAS and SIPP Practice Areas on a wide range of technical matters relating to the operation and governance of Barnett Waddingham’s self-invested pension arrangements.

    View Biography

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