Investors' Guide to the Financial Services Compensation Scheme (FSCS)

Transcription

1 Investors' Guide to the Financial Services Compensation Scheme (FSCS)

2 Important information This guide explains how the Financial Services Compensation Scheme (FSCS) in the United Kingdom works, and what protection it provides for our customers. It's important that you know that the outcome of any claim can only be determined when it arises and may be subject to the opinion of a Court. So this guide is based on our understanding of the rules for the FSCS and information which has been published by the FSCS. Also the information we have relied upon to produce this guide may change from time to time and without notice, so we'd recommend that you give the FSCS a call if you think that you may need to make a claim under the scheme. 2 Your questions answered

3 Contents What is the Financial Services Compensation Scheme (FSCS)? 04 Am I eligible to make a claim under the FSCS? 04 Am I always covered under the FSCS? 04 Would any compensation payment I receive be subject to tax? 04 Do I need to be a UK resident to claim under the FSCS? 04 Are there limits to the compensation payable by the FSCS? 04 Is Prudential covered by the FSCS? 05 Is Prudential International covered by the FSCS? 05 I have a Prudential individual pension/investment product to what extent am I protected by the FSCS? 05 How am I protected if I invest in a Prudential Self-Invested Personal Pension? 07 I am a member of a workplace pension what FSCS protection do I have? 09 Why do the funds I ve chosen affect my FSCS protection? 11 Where can I find out more about the FSCS? 11 Your questions answered 3

4 What is the Financial Services Compensation Scheme (FSCS)? The FSCS is an independent body set up by the UK Government to provide compensation or some other form of resolution for people where their authorised financial services provider gets into financial difficulties and becomes unable, or unlikely to be able, to pay any claims. This circumstance is widely referred to as being in default. It is important for you to be aware that you may not always be able to make a claim under the FSCS, and there are also limitations in the amount of compensation you may receive. Any compensation available will depend on your eligibility, the type of financial product or service involved, the investment funds selected (if applicable) and the circumstances of the claim. In this guide we explain these conditions. Am I eligible to make a claim under the FSCS? Individuals or owners of small businesses who take out financial products will normally be eligible to make a claim under the FSCS. Large companies may also be able to claim in respect of their long term insurance contracts. Depending on the type of financial product you hold, the maximum amount of compensation you can claim may vary. Please read Are there limits to compensation payable by the FSCS? It s worth knowing that the payment of monetary compensation may not be the outcome in every case taken up by the FSCS. For example, where an authorised insurer is in default, the FSCS must try to make arrangements for cover to be transferred to another insurer rather than pay compensation where it is reasonably practicable to do so and the alternative arrangements are beneficial to you. If the firm which has provided the financial product or given financial advice is not authorised to do so. Poor investment performance, such as a fall in the stock market, unless any financial recommendation you received is proven to be unsuitable. Would any compensation payment I receive be subject to tax? Normally FSCS compensation is tax-free, although you may need to pay tax on any interest payments you were expecting to receive from the firm in default. Do I need to be a UK resident to claim under the FSCS? You would be covered by the FSCS if at the time you took out the product you were an individual resident in the UK; or alternatively you are a director or a partner of firms who have received advice from an authorised firm in the UK. If you were living outside the UK when you took out the product you may be covered, depending on where you were living and the regulatory position for the firm. This can be complicated and so if this affects you we suggest that you discuss this directly with the FSCS. Are there limits to the compensation payable by the FSCS? Yes. The FSCS operates different levels of compensation. The scope and amount of cover available depends on the type of policy involved and the funds selected. The normal limits in terms of products is on the next page: Please ensure that you also read Important information about our funds and FSCS protection. Am I always covered under the FSCS? You may not always be covered under the FSCS, since it will not provide protection in the following circumstances: For any claim above the maximum limits (see read Are there limits to compensation payable by the FSCS? ) If the firm which provided the financial product is still trading, in which case complaints should be made to the Financial Ombudsman Service. 4 Your questions answered

5 Long-term insurance (e.g. workplace pensions (including additional voluntary pension plans, group personal pension plans and group money purchase plan), personal pension plans, annuities, endowment policies and investment bonds) 100% of the claim with no upper limit for the claim amount. Investments (e.g. Unit Trusts, Open Ended Investment Companies and Stocks & Shares ISAs) 100% but limited to 50,000 per person, per firm in default. Home Finance (e.g. Mortgage advice and arranging only) 100% but limited to 50,000 per person, per firm in default. General insurance policies 90% of a claim with no upper limit. Compulsory insurance, such as car insurance, for policies started on or after 14 January 2005, is fully covered with no upper limit. Deposits The FSCS would pay compensation up to the limit of 85,000 per person, per authorised deposit Group (bank, building society and credit unions). Since 3 July 2015, the FSCS provides a 1 million protection limit for temporary high balances held with your bank, building society or credit union if it fails. The position for Self-Invested Personal Pensions A Self-Invested Personal Pension (SIPP) is a type of wrapper for a mixture of different financial products. These products can include insurance, investments or deposits. SIPPs can be provided directly by a SIPP manager or by fund managers, banks, building societies or insurance companies. The result being that each sub-element of the SIPP (e.g. OEICs, Life Funds, Cash Account) is usually subject to its own FSCS protection up to the relevant product limit. Is Prudential covered by the FSCS? Yes. The Prudential Assurance Company Limited (PACL) and other UK authorised and regulated firms in the Prudential Group are subject to the FSCS. You may be able to make a claim if PACL is unable to meet its financial obligations. Is Prudential International covered by the FSCS? Prudential International Assurance (PIA) is authorised by the Central Bank of Ireland and is subject to limited regulation by the Financial Conduct Authority for UK Business. For eligible policyholders (e.g. individuals or small firms) habitually resident in the UK the FSCS would apply for policies taken out on or after 1 December Policyholders holding a UK policy, issued before 2001, may be eligible to make a claim before the FSCS, however, since such a policy would have been taken out before the FSCS commenced, they should check their eligibility directly with the FSCS. I have a Prudential individual pension/ investment product to what extent am I protected by the FSCS? Individual products are within the FSCS s category of longterm insurance. This includes personal pensions, annuities, endowments and investment bonds. These products are protected up to 100% of the claim with no upper limit for the claim amount. However, depending on the funds you have chosen will affect this protection. Our different products offer different investment options internal funds or external funds. Investment in Prudential s internal funds are fully protected by the FSCS in the event of a default of PACL, up to the product limits. Investment into external funds is not protected under the FSCS, although external fund managers may appoint a depository, custodian or other organisation, the purposes of which are to help ring-fence invested money from that of the fund manager and so help protect the invested money in the event the fund manager is insolvent. Although we aim to recover any money invested, PACL would not be liable for a default of the external fund manager. Also, unit prices may fluctuate in line with the value of the assets owned by the fund, but this is normal investment risk and not protected by the FSCS. The diagram on the next page, may help you to understand where money may be invested and the extent of FSCS protection as a result. Your questions answered 5

6 The following diagram shows the level of protection for our individual products under the category of long term insurance*: Endowment policies Product Prudential Assurance Company Limited (PACL) Internal funds including With-Profits Full FSCS protection with no limit Investment bonds Product Prudential Assurance Company Limited External insured funds Internal insured NOT covered under the FSCS Full FSCS protection with no limit Personal pensions Product Prudential Assurance Company Limited External funds Internal funds NOT covered under the FSCS Full FSCS protection with no limit *This diagram assumes that you are eligible to make a claim. Please read 'Am I eligible to make a claim' for more guidance. For FSCS and workplace pensions, please see 'I am a member of a workplace pension what FSCS protection do I have?' on pages 9 and Your questions answered

7 How am I protected if I invest in a Prudential Self-Invested Personal Pension? Prudential s earlier Self-Invested Personal Pensions, including Flexible Retirement Plan, offer self-investment through reinsurance agreements with other SIPP managers. The FSCS does not provide protection for any losses resulting from default of these SIPP managers because of these reinsurance agreements, although Prudential closely governs these relationships. Flexible Retirement Plan offers external and/or internal funds. Money invested in our internal funds is fully covered by the FSCS under the category of long term insurance. Money invested into external funds is not covered by the FSCS, although external fund managers may appoint a depository and a custodian, the purposes of which are to help ring-fence invested money from that of the fund manager and so help protect the invested money in the event the fund manager is insolvent. Although the trustees, Prudential Corporate Pensions Trustees Limited (PCPTL), aim to recover any money invested, PACL would not be liable for a default of the external fund manager. For our latest SIPP Retirement Account PACL is the SIPP manager whilst PCPTL legally owns the assets in the Retirement Account, and holds those assets for the benefit of the customer. The result being that each sub-element of the SIPP (e.g. OEICs, Life Funds, Cash Account) is subject to its own FSCS protection up to the relevant product limits. It s important to be aware that PACL would not be liable for a default of any external sub-elements within the SIPP, although PCPTL would look to recover any invested money. The following summarises the FSCS protection for each sub-element: The SIPP wrapper is fully protected under the FSCS up to 50,000 per person, per authorised firm. Here the protection is in regards a claim arising related to Prudential Assurance Company Ltd's operation of the SIPP. Internal funds (PruFund range) are fully protected under the FSCS with no limit. External fund investments (individual fund managers) through OEICS are fully protected up to 50,000 per person, per authorised firm. Stocks & shares investments through Alliance Trust Savings Limited (ATS) are fully protected under the FSCS up to 50,000 per person, per authorise firm. Cash Account (trustee bank account) is fully protected up to 85,000 per person or company, per authorised firm. The diagram on the next page, may help you to understand where money may be invested and the extent of FSCS protection as a result. Your questions answered 7

8 The following diagram shows the level of protection for our self-invested personal pension products under the category of long term insurance*: Flexible Retirement Plan (SIPP Option) Product SIPP Wrapper (Suffolk Life) Prudential Assurance Company Limited Internal funds External funds Full FSCS protection with no limit NOT covered under the FSCS Open Ended Investment Companies/Unit Trusts Fully protected up to 50,000 per person, per firm in default Retirement Account Plan The operation of the SIPP is protected up to 50,000 Prudential Assurance Company Limited (PACL) PruFunds Full FSCS protection with no limit Product SIPP Wrapper (PACL) External noninsured Open Ended Investment Companies (OEIC) Individual fund managers & Protected Investment Business are both fully protected up to 50,000 per person per firm Stocks & shares investments (Alliance Trust Savings Limited) Fully protected up to 50,000 per person per firm in default Cash Account (HSBC) Fully protected up to 85,000 per person, per deposit group *This diagram assumes that you are eligible to make a claim. Please read 'Am I eligible to make a claim' for more guidance. 8 Your questions answered

9 I am a member of a workplace pension what FSCS protection do I have? Workplace pensions are within the FSCS s category of longterm insurance. This includes stakeholder pensions, additional voluntary contribution plans, group personal pensions and group money purchase schemes. These products are protected up to 100% of the claim, with no upper limit for the claim amount. However, depending on the funds you have chosen will affect this protection. Our different workplace pensions products offer different investment options how they are managed can have a bearing on the level of FSCS protection. If you invest in funds managed by Prudential Assurance Company Limited (PACL), i.e. With-Profits or Deposit, you are fully protected under the FSCS up to 100% of your investment subject to there being an eligible claim. If you invest in funds managed by Prudential Pensions Limited (PPL), i.e. any Prudential funds other than With-Profits or Deposit, you will not be covered under the FSCS. Although FSCS protection does not apply to PPL funds there is a custodian in place to offer protection to investors. The purpose of the custodian is to help ring-fence invested money from that of the fund manager and so help protect the invested money in the event the manager is insolvent. If you invest in external funds offered by other fund managers, these will not be covered under the FSCS, although external fund managers may appoint a depository, custodian or similar organisation, the purposes of which are to help ring-fence invested money from that of the fund manager. Although we aim to recover any money invested, PACL would not be liable for a default of the external fund manager. We conduct robust on-going monitoring of all internal funds and the external fund managers we invest with. This aims to ensure the integrity of the funds, the security of the assets managed on our behalf and that an agreed investment approach is followed. This allows us to anticipate any events that may cause solvency issues to ensure they can be addressed appropriately. To find out more about the funds you have invested in, please contact us or speak to your scheme administrator. The diagram on the next page, may help you to understand where money may be invested and the extent of FSCS protection as a result. Your questions answered 9

10 The following diagram shows the level of protection for our workplace pensions products under the category of long term insurance*: Internal funds NOT covered under the FSCS Product Prudential Assurance Company Limited Reinsurance Prudential Pensions Limited (PPL) External funds NOT covered under the FSCS External reinsured funds NOT covered under the FSCS With-Profits & Deposit fund Full FSCS protection with no limit Internal funds Full FSCS protection with no limit External funds NOT covered under the FSCS *This diagram assumes that you are eligible to make a claim. Please read 'Am I eligible to make a claim' for more guidance. 10 Your questions answered

11 Why do the funds I ve chosen affect my FSCS protection? Internal insured funds If you invest in our internal funds as a policyholder you are buying units in these funds. If PACL is deemed to be in default your investment is protected by the FSCS under the category of long terms insurance. Any investment in funds available through PPL for a workplace pension, such as a stakeholder plan, additional voluntary contribution plan, group personal pension, or group money purchase plan would not be covered by the FSCS. This is because this as a result of a reinsurance agreement between PACL and PPL. Please read Reinsured funds for more information. External funds If you choose to invest in an external fund offered through PACL, here shares are purchased in funds provided by other fund managers (including fund managers within the Prudential Group of companies), should that other fund manager or company be deemed to be in default. Role of Custodians and ring fencing for external funds Any money invested in an external fund is kept separate from the assets of the actual company that manages the fund. External fund managers may appoint a depository, custodian or similar organisation, the purposes of which are to help ring-fence invested money from that of the fund manager. If the company that manages the fund goes into default, the Custodian in this instance would return any monies. Since your money is kept separate from the assets of an external fund manager, the only likely reason for an external fund defaulting would be as a result of dishonesty, fraud or negligence. It is important to remember that investment into external funds is not protected under the FSCS and although we would aim to recover any money invested, PACL would not be liable for any shortfall following a default of external fund managers. Reinsured funds In addition to PPL, PACL has reinsurance agreements with other companies or fund managers to allow our customers access to their funds. Here the external fund manager invests our customers money together with their own customers money and that of companies similar to PACL. You would not be protected by the FSCS should this external fund manager or company be deemed as being in default. Although we would aim to recover any money invested, PACL would not be liable for a default of the reinsurer. Where can I find out more about the FSCS? For more information about the FSCS you can contact them at: Post: The Financial Services Compensation Scheme PO Box 300 Mitcheldean GL17 1DY Telephone: Website: Your questions answered 11

12 "Prudential" is a trading name of the Prudential Assurance Company Limited, which is registered in England and Wales. This name is also used by other companies within the Prudential Group. Registered office at Laurence Pountney Hill, London EC4R 0HH. Registered number Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. GENM /2017