A SIPP is a Self Invested Personal Pension, and as the name suggests, allow the holder a wide degree of freedom to invest in different types of investments. The SIPP itself is simply a wrapper for the investments within it which can be FCA regulated products such as unit trusts, shares, bonds and gilts and also more risky, unregulated products including collective investment schemes and property investment schemes (UK and overseas). A SIPP can be an excellent pension choice for a well advised or well informed individual, but the level of possible flexibility involved can lead to problems.
Complaints about SiPPs are on the increase at the Financial Ombudsman Service and the Financial Services Compensation Scheme with many consumers questioning the suitability of the investments they have been advised to take, or finding themselves facing unexpected levels of fees. Typical problems include:
- Investments held in unsuitably high-risk products which have become worthless or underperformed due to the failure of the underlying scheme,
- Investments in products which are incapable of being sold or transferred, restricting ability to draw on pensions. This can include fractional property investments in overseas holiday resorts or storage units, or long term investments in corporate bonds which may have been delisted from a trading market,
- Unexpected fees and charges being applied or requests for top-up payments required for ongoing fees. Most SIPP administrators look for a cash reserve of around £2,000 being kept in a cash account to pay for fees and if that is depleted consumers may find themselves receiving unexpected requests for payments,
- Loss of valuable protected rights on previous pensions in transferring into a SIPP.
Who should bear the responsibility for such problems faced by consumers, and how can consumers go about obtaining compensation for loss incurred on their pensions?
Every SIPP is managed by a SIPP administrator; they receive the initial transfer in, hold any residual cash, organise the investment the consumer wishes to make and deal with receipts and payments from that investment.
SIPP administrators seek to distance themselves from the choice of investments actually made within the SIPPs they manage, hence the involvement of IFAs who can advise on the transfer of existing pensions into a SIPP structure and the choice of investments within the SIPP.
Where a SIPP investment fails, or there is any other complaint or claim about investment advice, the first port of call ought to be to the IFA who advised on the transfer and investment. Typically, they will have received a lump sum payment for initial advice and often also an ongoing annual payment, from the SIPP assets. An IFA advising about pension transfers and investments owes duties to consider the suitability of investments, taking into account a consumer’s circumstances.
Where problems have occurred, therefore, consumers may well have valid complaints or claims against the original advising IFAs including failure to advise about the risks involved with particular investments, failing to properly assess a consumer’s attitude to risk, failing to advise about the loss of benefits on existing pensions, failing to consider diversification of investment and whether or not an investment is at risk of becoming inaccessible (illiquid), particularly where a consumer is approaching retirement age.
If an IFA is still in business, a complaint can be pursued to the Financial Ombudsman Service who have the power to make compensatory orders to put consumers back into the position they ought to have been, had the poor advice not been given. The limit of compensation available is £150,000. If an IFA has gone out of business, a complaint needs to be directed to the FSCS which has a lower maximum level of compensation of £50,000.
In circumstances where a consumer has lost a higher amount than £50,000 and their IFA is no longer in business, some claims are being considered against the SIPP administrators themselves. In 2014, the FOS upheld a complaint by a consumer in these circumstances against SIPP administrator, Berkeley Burke. The consumer had held an unregulated investment within his SIPP and alleged that Berkeley Burke ought to have identified that it was unsuitable for him. Berkeley Burke have contested this FOS decision strenuously, first threatening judicial review and then when the FOS issued a second decision in February 2017, again upholding the complaint, again threatening judicial review and bringing an application alleging that the FOS decision was an arbitration decision and was subject to appeal to the High Court. That latter point has recently been dismissed, but the judicial review application remains pending.
The current situation is, therefore, uncertain as to whether SIPP administrators will ultimately bear any legal responsibility for the plight of consumers who have been sold unsuitable and in many cases worthless investments.
If you have been affected by these issues, Claire Collinson Legal has significant experience in dealing with FOS and FSCS claims and offers a range of different funding options including standard hourly rate charges, fixed fee arrangements (so you know exactly how much you will pay from the outset) and alternatively, in suitable cases, no-win no-fee arrangements.
