The Financial Services Compensation Scheme (FSCS) has reported a rise in the number of complaints relating to SIPPs (Self-Invested Personal Pensions) and at the same time has issued a warning to investors.
The FSCS compensates investors for poor advice, when a complaint is upheld, but the original adviser is no longer trading.
Figures released this week show that complaints relating to pensions and investments are up 15% over the past year. The FSCS has said the increase is down to the number of complaints relating to the sale of SIPPs. There seems to be particular concern about the advice some people have received to transfer occupational pension schemes into SIPPs, only then to make risky investments often into overseas property.Our advisers can help you get your savings working harder for you
Commenting on the news, Andrew Roberts, Partner at SIPP provider Barnett Waddingham, said: ”This report isn’t unexpected at all given the plethora of reports concerning the use of SIPPs for investing in non-mainstream investments over the last couple of years. In fact, this report is likely just highlighting problems which are a few years old.”
Roberts continues: “For claims relating to investment failures, there is often a lag of a few years between the investment being made and the FSCS being involved. Even for Ombudsman decisions, there will be a lag as the consumer will be happy with the situation at outset, expecting high promised investment returns and it is only some time later that a claim is made when those returns fail to materialise.”
“I would expect that most SIPP providers are aware of the business risks of allowing non-mainstream investments and have already responded to this issue in some manner, given comments by the regulator including in its second thematic review of the SIPP industry. Many providers have stopped or restricted access to non-mainstream investments for example.”
Warning to investors
Experts have warned that despite new pension freedoms announced in the Budget, it is rarely in an investor’s best interest to transfer money from a Final Salary pension scheme.
This type of pension, also sometimes known as a Defined Benefit pension, provides a guaranteed income in retirement, which usually includes some form of inflation protection.
Investors should treat claims that an investment within a SIPP can offer a better return than a Final Salary Pension with scepticism and remember the old mantra: ‘if it’s too good to be true, it probably is.’
Harlequin complaint upheld
The warning from the FSCS comes in the same week that the Financial Ombudsman Service, which adjudicates in cases of complaint, published the first decision relating to the sale of an investment in Harlequin Property.
The couple, referred to as Mr and Mrs A, were advised to transfer their pensions into a SIPP and then invest the proceeds into an overseas holiday development marketed my Harlequin Property.
The ruling looked at whether the adviser who recommended the transaction could take responsibility for just the transfer into the SIPP but not the subsequent investment into Harlequin Property.
In the adjudication, which found in favour of Mr and Mrs A, the Ombudsman said: “It is difficult to see how a recommendation to start the SIPP can be suitably made without considering the proposed investment itself.”
The investment into Harlequin Property cannot currently be cashed in, so the Ombudsman has ordered Harris Knights, against whom the complaint was made, to take ownership of the investment and reimburse Mr and Mrs A in full.
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