The Co-op has recently announced major restructuring policies that have gained the notice of many of its consumers. Fears have been raised about what this restructuring will mean for people who hold money in the Co-op, particularly in long-term savings accounts and insurance policies. While the restructuring is an important step in order for the Co-op to maintain fiscal stability, many of the fears voiced by consumers are ultimately unfounded. Those who have money invested in the Co-op can be assured that under both the Co-op’s new structure and under UK law, their finances will be protected. In this article we will look at some of the concerns raised, and why UK consumers have nothing to fear from the Co-op’s restructuring.
Most of the concerns raised come from consumers who have current accounts, savings accounts, or Isas with the Co-op. In particular, long-term savings accounts holders, whose accounts are often referred to as “bonds” with the Co-op, have raised worries because of new rules which will mean that bondholders will be adversely affected. However, the bonds that will be affected are different from the long-term savings accounts, or bonds, that many people have with the Co-op. The bonds referred to as being adversely affected are only corporate bonds, which is debt held by companies who have invested in the Co-op. Individual savings account will not be affected and will be protected under UK law just as they always have been.
Customers with accounts at the Co-op will notice no difference due to the restructuring. All savings are still protected by the UK’s Financial Services Compensation Scheme (FSCS). What this scheme means for consumers is that, in the unlikely scenario that the Co-op goes bankrupt, the government will cover your savings at the bank up to £85,000. If you have more than this invested in the Co-op, then that extra money is exposed to slightly more risk, but no more so than before the restructuring was announced. And just to be clear, there is absolutely no indication that the Co-op is at risk of going bankrupt.
Insurance, Stocks, and Pensions
Concerns have also been raised about whether the restructuring will make people’s insurance policies, shares and stocks, and pensions with the Co-op vulnerable. Again, there is nothing to fear. While these investments will be affected because the Co-op has sold its fund management and life insurance division to Royal London, all this means for consumers is that they will automatically be transferred from the Co-op to Royal London. While the company name will change, their investments are still protected by the FSCS. For example, if your life insurance provider, whether it’s the Co-op or Royal London, goes bankrupt and can’t pay out your claim, the government will cover your claim up to 90 per cent. Likewise, the scheme protects investments up to £50,000 per person.
The Co-op’s announced restructuring may sound scary, but for consumers of the Co-op there is little to fear. Most consumers will notice no difference to their accounts, and even those who are transferred to a different company will still be protected by the same government protections as before. In short, the Co-op restructuring is just a sound step in order to maintain stability, and will have little to no impact on consumers.
Jon Custer is a former financial advisor. Now retired, he contributes to several blog sites. You can find an annuity calculator from Moneyvista.com, here.