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Time to tighten the reins on SIPP investments?

SIPPs complaints to FOS are up 34%. The industry must look at why and what can be done about it, says Mike Morrison, head of Platform Technical, AJ Bell

I am always interested to see the annual Financial Ombudsman (FOS) report on the complaints they’ve seen in the last year. It saddens me to see the volume of complaints about SIPPs and SSASs on the increase – indeed a 34% increase this year!

The substance of these complaints is not clear but my guess would be that some are due to administrative or procedural problems but the majority are due to specific investments that have run into problems.

I have been involved with the vetting of SIPP investments since July 1990, just after SIPPs were permitted, and over the years I have seen some very interesting investment opportunities proposed.

In those days we had a permitted investment list to work from but that wasn’t necessarily the only reference point. We had to ascertain whether we could administer the asset if it was non-standard, whether it was truly legal and, I guess with one eye on the future, whether we would like to be associated with any fallout if something went wrong.

Many of the investments were structured as funds and generally these were possible to administer if they shared similar characteristics as normal funds. However, this did not stop some of them failing as their structure, market conditions or occasionally a ‘legal issue’ caused them problems.

A few were very ‘non-standard’ and some of these non-standard investments have come and gone over the years – remember car parking spaces and store pods? One of the leading store pod operators was in the news recently amidst reports of lots of pension money that might never be seen again (with some possible implications of fraud).

As legal cases commence (and are reported), complaints come from advisers who say they would have only ever used traditional investment classes and, as their FSCS levy goes up, they question why they have to pay for the sins of others.

At this point I keep coming back to the point that a permitted investment list for SIPPs would help avoid a high number of these cases occurring in future. I do not mean a static list but one that can be amended and investments added or removed. This list would include regulated investments, for which there is already some consumer protection in place, and new regulated categories added in future. Only investments on the permitted list would be covered by the FSCS and it would have to be made clear to investors that anything off that list is not covered.

We also continue to read about the pension scams that occur, perhaps even specifically by SIPPs to invest in unregulated investments. For example, I read last week that TISA are looking at alternative finance products – such as P2P lending and crowd funding – becoming SIPP permissible investments. The report suggested that the aim is to “work with other trade bodies to bring P2P and crowd funding into the SIPP world”.

To do this they will need to address tax issues and also the ‘standard’ and ‘non-standard’ definitions of assets, as introduced by the SIPP capital adequacy legislation. This seems like a sensible approach and I guess it would also include some research to confirm that firstly, there is a demand for such investments and secondly, that they are suitable investments which can be administered and have an appropriate consumer protection framework.

As we progress through the year I am sure that we will see further headlines about unregulated investments and the continuing argument about advice and responsibility. I would not be surprised if other ‘non-standard investments’ perhaps made some years ago make some headlines again.

See also from Mike Morrison: SIPPs, another black mark or caveat emptor





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