With the Financial Services Compensation Scheme (FSCS) now securing up to £120,000 per individual in bank and building society accounts, I embarked on a quest to uncover the extent of protection available for our pensions and stocks and shares ISAs.

Over time, both a pension and a stocks and shares ISA are likely to surpass the FSCS protection threshold of £120,000. Nevertheless, I’m uncertain if this limit applies to these investments, as it could be as low as £85,000. If that is the case, the protection offered seems woefully insufficient.

So, what portion of my pension or stocks and shares ISA benefits from FSCS safety nets?

My spouse and I have pensions and stocks and shares ISAs, both curated by our independent financial advisor and invested in a ‘growth’ portfolio of funds. We fear that if the platform holding these assets were to collapse, we could face devastating financial losses.

What strategies are recommended to mitigate such risks? Should we diversify our investments across multiple providers to ensure that our growing pensions and ISAs remain covered by the FSCS? J.D., via email

The FSCS £120,000 protection is specifically targeted towards cash deposits, and doesn’t apply to pension holdings

Harvey Dorset, from This is Money, responds: Your pension represents a cornerstone for funding retirement, and for this reason, many of us dedicate our entire working careers to building a substantial pot.

With auto-enrolment introduced in 2012, it is now more effort for salaried employees to not pay into a pension than it is to do so. This has substantially boosted pension saving. Meanwhile, many others use self-invested personal pensions (Sipps) that they manage themselves. 

This means that millions of people will find that they have significant pension pots by the time they reach retirement age.

Above the age of 55, the average pension pot is worth well beyond the £120,000 covered under the FSCS scheme. According to the ONS for savers between the ages of 55 and 64, the average pot is £137,800.

But as highlighted below, the FSCS’s new higher £120,000 protection limit is specifically targeted towards cash deposits and doesn’t apply to pension holdings or other investment accounts. 

This is Money spoke to two experts who explain below how exactly your pension is protected, and whether you need to take action to spread your risk.

Morgan says it is important to ensure that you only deal with FCA-regulated firms

Rob Morgan, chief analyst at Charles Stnaley, replies: The £120,000 FSCS limit applies to cash deposits at UK‑authorised banks, building societies and credit unions. 

This includes current accounts, savings accounts and cash held temporarily at banks.

For investments, including stocks & shares Isas and most pensions, the protection limit remains at £85,000 per person, per authorised firm – and it’s important to check any financial business you use is regulated and therefore carries this protection.

The FSCS covers you to this extent if your platform or provider fails and cannot return your assets. Anything over that is not protected by the scheme. 

However, the risk is very low owing to the significant UK regulation around the safeguarding of customer assets, which tends to mean it is not necessary to diversify providers.

Regulated UK platforms and providers must follow very high standards and strict rules to hold and protect people’s assets and money. Customer assets are held in segregated accounts, separate from the firm’s own funds, and they must be clearly recorded and regularly reconciled. In most cases, investments are held under nominee structures meaning you always retain beneficial ownership even if the provider fails.

Owing to this strict ring-fencing, problems with regulated platform providers are incredibly rare, and in the event of a business failure customers would typically get all their assets back swiftly and accurately.

However, it does underline the importance of only dealing with a business authorised and regulated by the FCA or PRA to ensure not only falls under the FSCS scheme but that it upholds all the standards of a regulated firm including the asset segregation rules.

> Guide to FSCS protection: How savings, investments and pensions are kept safe

Mir says platform failure rarely results in investors losing their holdings due to pension ring-fencing

Zohaib Mir, financial planner at EQ Investors, replies: Most pensions and Isas held on UK platforms are subject to strict FCA client asset rules. 

This means your investments are legally segregated from the platform’s own assets and are held in custody (typically through nominee structures).

If a platform were to fail, your investments do not form part of the platform’s balance sheet and should remain legally yours. 

In practice, the usual outcome is that the assets are transferred to another authorised provider rather than lost.

The FSCS does still provide a safety net, but only in specific circumstances. If an investment firm or platform failed and there was a shortfall in client assets (for example due to fraud or administrative failure), the FSCS may compensate up to £85,000 per person, per firm. 

This is different from the £120,000 bank deposit limit. Importantly, FSCS does not cover normal market movements or investment losses.

Pensions can have additional layers of protection depending on their structure. Where a pension is provided by a life insurance company, FSCS protection can be 100 per cent with no upper limit if the insurer fails. 

For Sipps, the £85,000 investment-firm limit typically applies to the operator. Defined benefit pensions are protected separately by the Pension Protection Fund.

Because of the way client assets are ring-fenced, platform failure rarely results in investors losing their holdings. For this reason, it is not usually necessary to split pensions or Isas purely for FSCS purposes. Diversifying across providers may be considered in very large portfolios, but this is generally a risk-management choice rather than a requirement for protection.

In summary, while FSCS limits for investments are lower than for cash, the legal segregation of assets means the risk of losing your pension or Isa due to platform failure is typically very low.