How safe is your pension?

Have you been thinking about starting a pension, but worried about how safe your money would be? Find out what protections are in place.

It’s not difficult to understand why people are nervous about trusting their financial futures to pensions if they remember Robert Maxwell. The disgraced media mogul famously looted money from the pension fund of the Mirror Group in an attempt to prop up his company share price.

In total, he was said to have stolen £460 million. And even with a partial government bailout and money from investment bankers who advised Maxwell, most of the people whose funds he plundered only received 50% of the value of their pensions.

So could this happen today? Thanks to the 1995 Pensions Act, no. As a result of the actions of Robert Maxwell, a review was conducted to look into ways that the running of pension schemes could be improved. Further changes were made in the 2014 Pensions Act.

So, how safe is it really if you were to entrust your future to a pension fund or workplace pension scheme? When weighing up the pros and cons of investing in a pension, the security of your money will absolutely feature. So, to help answer your pension questions, so we decided to look into the regulations surrounding pension safety for you.

The three different types of pensions

Before we examine how safe your pension may be, let’s quickly look at the three different types of pensions that are available.

1) A private pension

A private pension is a plan into which you privately contribute from your earnings, which then will pay you a pension after you retire. 


A self-invested personal pension (SIPP) is a UK government-approved personal pension scheme that allows you to make your own investment decisions from the full range of investments approved by HMRC.

3) A workplace pension

A workplace pension is a way of saving for your retirement that’s set up by your employer. A percentage of your pay is paid into the scheme automatically every payday. Your employer usually contributes money to the scheme for you too. 

How safe is your pension?

So how safe is your pension? The first thing you need to know is that the Financial Services Compensation Scheme (FSCS) protects you for up to £85,000 per person, per institute. So straight away, a significant sum of your pension is protected.

There’s more reassurance too. If your pension provider is has been authorised by the Financial Conduct Authority (FCA), it is covered in the following way:

  • If you have a private pension and it fails, the FSCS will cover 100% of your claim with no upper limit.
  • If you have a SIPP and your operator fails, you are protected by up to £85k per person, per institute.
  • If you have received bad pension advice, you can claim compensation up to £85k per eligible person, per firm.

However it is important to note that, while the FSCS does offer protection, it doesn’t cover performance losses. So if you invest in shares that fail, you can’t claim compensation. But if you think you have received poor investment management, then you may have a claim.

How safe is your workplace pension?

There are also rules regulating workplace pensions. These rules ensure that your workplace pension is protected, whether the provider is your employer or a financial company.

Exactly how your pension is protected depends on which of the two types of scheme it is:

  • Defined contribution pension scheme – this means your employer chooses a pension provider to invest your pension contributions.
  • Defined benefit pension scheme – these schemes promise to pay you a certain amount each year when you retire.

How are you protected on a defined contribution pension scheme?

If you’re on a defined contribution scheme a pension provider usually looks after your pension fund. So even if your employer goes bust, you won’t lose your pension fund.

If your pension provider cannot pay your pension but they were authorised by the FCA, you can get compensation from the FSCS. As outlined previously, this could be 100% of your claim with no upper limit.

How are you protected on a defined benefit pension scheme?

Your employer needs to ensure their scheme has enough money to pay your pension. And they aren’t able to spend the pension fund if they have financial problems.

If your employer goes out of business and can’t pay your pension, you are usually protected by the Pension Protection Fund (PPF). The PPF usually pays:

  • 100% compensation if you’ve reached the scheme’s pension age
  • 90% compensation if you’re below the scheme’s pension age

What happens if you experience pension fraud, theft or bad management?

If there is a shortfall in your workplace pension fund and that has been caused by fraud or theft, the Pension Protection Fund may be able to recover some money.

What happens if your employer’s business is taken over?

If your employer’s business is bought out or merged with another company and you decide to stay, your new employer must:

  • Give you access to a replacement pension
  • Tell you about the new pension scheme
  • Automatically enrol you in it if you’re eligible

Do you have a pension yet?

If you haven’t yet started saving for your retirement, you may want to look into your pension options.

Risk warning: As always with investments, your capital is at risk. The value of your investment can rise or fall, and you could receive back less than you invest. This information should not be considered as financial advice.