The Cube

The SIPP Mis-selling Scandal

22 Nov, 2017

 

SIPPs are Self-Invested Personal Pensions which the Government approved and introduced in 1989.  More than a million people have used SIPPS to attempt to increase their pension pots, but many people have lost their hard-earned pensions through mis-selling and the Financial Services Compensation Scheme (FSCS) have seen a huge rise in complaints relating to SIPPS and have set aside over £100m to pay in compensation to badly advised investors.

We are seeing an increasing number of mis-selling cases involving SIPPs.

‘Establishing and operating a SIPP’ became a regulated activity under Article 52 (b) RAO.  This makes them the subject of the control of the Financial Conduct Authority.

Consequently the FCA has undertaken reviews of this area of financial activity and published various papers, including Self-Invested Personal Pensions (SIPP) Operators’ Report on the findings of a thematic review in September 2009 and Self-Invested Personal Pensions (SIPP) Operators’ Report on the findings of a thematic review October 2012.

The FSA also issued an alert on 11 January 2013 relating to advising on pension transfers with a view to investing pension monies into unregulated products through a SIPP. Already there were worries that there could be mis-selling of SIPPs.

The Financial Conduct Authority issued a further alert on 28 April 2014 about pension transfers or switches with a view to investing pension monies into unregulated products through SIPPs.  This confirmed that there were concerns that there could be mis-selling of SIPPs.

The FCA then published two further alerts, one on 2 August 2016 and latterly on 24 January 2017, which was advice on pension transfers and their expectations.

This firm has seen monies transferred out of single asset SIPPs and invested in illiquid and high-risk vehicles ranging from airport car park slots to West Indian hotel complexes said to be under construction.

In relation to transactional steps involved, they include a recommendation to surrender rights in an existing plan or scheme, then to establish a SIPP and to instruct the SIPP trustees to invest the transferred fund into one of the single asset investments described.

Pension holders should have been informed that single asset investments involving SIPPs are fraught with risks, which include market/valuation risk, legal and foreign enforcement risk, business performance risk, provider/issuer solvency risk and liquidity risk.

Generally, we advise that these investments often are not suitable as pension investments and not in any event as a whole fund investment.

A number of SIPP holders have found unregulated introducers were finally insolvent.  Even when authorised introducers have been involved, they have put forward defences to try to avoid responsibility, saying that they didn’t advise on the investment but only on the identity of a SIPP provider.

All too frequently, the regulated introducers fail to have adequate insurance cover through their PIO to meet claims.

SIPP pension holders are therefore finding themselves having surrendered valuable benefits in low or lower risk and diverse pension funds into SIPPs that have failed, usually losing all of the transferred pension monies.

The FCA said in their 2009 thematic review that they were concerned at the widespread misunderstanding among SIPP operators that they bore little or no responsibility for the quality of the SIPP business that they administer because advice is the responsibility of other parties – and by that usually they mean the Independent Financial Advisors (IFAs).

Unregulated introducers usually get caught by Section 27 of FSMA and that’s a regulated activity. 

People who have lost their pensions or part of their pensions as a result of SIPP mis-selling need to take legal advice in order to ensure that they know whether they have a good case and how and what damages they can expect.

My next blog will be on the topic of what damages you can seek if you have been mis-sold SIPPs, plus valuations on losses and defences that the mis-sellers of SIPPS put forward in relation to the SIPP mis-selling scandal.