Specialist financial planning practice

FSCS compensation limit goes back up

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31 January 2017

FSCS compensation limit goes back up

Today, the Financial Services Compensation Scheme Deposit Protection limit increases to £85,000.

The FSCS scheme pays compensation in the event that deposits are lost as a result of the default of a bank, building society or credit union. The limit is set EU-wide at €100,000 and for non-Euro countries the local currency equivalent has to be reassessed at least every five years, or more frequently if appropriate. The Pound has weakened against the Euro since the Brexit referendum and therefore the limit has been increased from £75,000, effective from today.

I thought it worthwhile to remind you of some of the key features. The compensation is payable per person per bank. In other words, if you had £170,000 in two banks and were in the extremely unfortunate position of having both banks go under, you would get it all back. But, if you had two separate accounts with the same bank, only £85,000 would be protected.

However, there is an important caveat to remember – the compensation is per banking licence. So if you had two accounts with different, but linked banks that share a banking licence, then you have only £85,000 of compensation cover. A good example is Halifax, Bank of Scotland, Aviva, Birmingham Midshires, BM Savings, Intelligent Finance and SAGA. All have distinct high street identities but all come under the HBOS group and share the same banking licence. Therefore, holding accounts with two or more of these institutions means having only an £85,000 compensation limit across them all.

Whilst preparing this piece I was reminded of the protection for temporary high balances, which gives cover for high balances for up to six months. For example, you’ve sold a property for £850,000 but won’t be repurchasing for several months. Obviously that is well above the standard protection limit but you don’t want to be hunting down 10 different accounts. The Temporary High Balances protection will cover you in these circumstances.

Compensation of up to £1 million (with unlimited cover for personal injury claims) will be paid in respect of:

  • Real estate transactions (property purchase, sale proceeds, equity release)
  • Benefits payable under an insurance policy
  • Personal injury compensation (unlimited)
  • Disability or incapacity (state benefits)
  • Claim for compensation for wrongful conviction
  • Claim for compensation for unfair dismissal
  • Redundancy (voluntary or compulsory)
  • Marriage or civil partnership
  • Divorce or dissolution of civil partnership
  • Benefits payable on retirement
  • Benefits payable on death
  • A claim for compensation in respect of a person’s death
  • Inheritance
  • Proceeds of a deceased’s estate held by their Personal Representative

This is quite a wide definition and ought to cover most circumstances where a temporary high balance will arise. Naturally evidence would be required, such as court documents, death certificates and legal correspondence, but it would be difficult to imagine a circumstance where such evidence would not be to hand.

One final thought on the standard depositor protection – this, being an EU provision would, I assume, be written into UK law post-Brexit under the proposed Great Repeal Bill, which will repeal the 1972 European Communities Act. Thereafter it will be up to the UK Government where the compensation level should be. Will it stay the same? Could it go up? Might it go down? Or, would we see a return to the more complicated 90% of £X + 100% of £Y up to a maximum of £Z? Time will tell.

30.01.2017

Philip Chandler APFS, CFPTM, Chartered MCSI

Chair of Aspinalls Technical and Investment Committee