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LV= Self Invested Personal Pension

LV= Banks

An explanation of the rationale behind the current process is set out below:

The original process

Any money held within the Flexible Transitions Account as cash (within the Transitions Bank account) was held with the Royal Bank of Scotland (RBS). If RBS defaulted, we would have been able to make a claim for compensation with the Financial Services Compensation Scheme (FSCS) on the members’ behalf, for up to £85,000. The FSCS limit of £85,000 covers all savings each member has with that financial institution. So, if the member’s private savings with RBS, combined with any money held within the Transitions Bank Account, were above the £85,000 limit, their money would not be fully protected.

The current process

In order to provide better protection for our members we now hold client money in a number of banks and spread our cash holdings across these institutions. We still use RBS as our main clearing bank for day-to-day transactions, but diversify other money across the other banks. We expect to hold between 15% - 25% of cash with each bank and have partnered with Cashfac Technologies, a global leader in Cash Management solutions to help us automate and efficiently manage how money is held across banks.

What is the benefit to customers?

By spreading client money across banks, it means that money held has a higher level of FSCS protection. For example, if a member has a cash holding of £200,000.00 with one bank, only the first £85,000 is protected. With the cash spread across 5 banks, each bank would hold just £40,000 (20%). This means the whole fund is fully protected as the £85,000 limit is not breached. In addition, the £85,000 compensation limit is the total of private savings and money held within the Transitions Bank account. As a high street bank, it is more likely that our members will hold other savings with RBS. By significantly reducing the amount we hold with high street banks, our members’ overall savings are less likely to breach the FSCS limit and should be better protected.

How did we select the banks and how do I find out about them?

When selecting banks, we looked at both creditworthiness and how likely our members are to hold money with each bank elsewhere. Although RBS are a high street bank, the other banks we have selected are not. By using strong banks that do not have a presence on the high street, members will be less likely to already have accounts with these banks elsewhere. This should ensure that FSCS protection is not diluted by any other cash deposits they hold. We will continue to monitor the banks we use and the amounts invested, which may change from time to time. The Banks we use currently are:

  • Arbuthnot
  • Kleinwort Benson (UK)
  • Kleinwort Benson (Channel Islands)
  • Metro Bank
  • RBS

Are all the banks fully covered by the FSCS?

Of the banks selected, we have selected one bank that is based in Guernsey and therefore falls under the Guernsey Banking Deposit Compensation Scheme, rather than the FSCS. This scheme provides compensation of up to £50,000 per person per licensed bank. Even though the compensation under this scheme is lower, we found this bank to be financially strong and felt that the additional diversification would still provide better overall protection for members. It is also a bank that we expect few members will have other cash holdings with. We won’t consider banks in jurisdictions that aren’t covered by a strong compensation scheme. All of the other banks selected are covered by the FSCS.

Will this affect the interest rate paid?

No. The interest rate payable on the Transitions Bank Account will not be affected by this change. We currently pay interest at 1% below the Bank of England base rate. For any period when the base rate is 1% or less, we do not pay interest. Any difference between the interest rate we receive and that credited to the Transitions Bank Account is retained towards the cost of providing our services.

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