The FSCS Plan and Budget report for 2017/18 states that the FSCS has received significant numbers of claims against financial advisers in relation to advice given to transfer funds from existing pension schemes to SIPPs. However, it is also clear that the majority of these claims concern advice to invest the SIPP funds in high risk, non-standard asset classes, many of which have become illiquid.
The FSCS also expects to continue to see increased numbers of claims in this category, suggesting that additional supplementary levies may be imposed in future.
AJ Bell would like the FCA to re-instate a permitted investments list for SIPPs, similar to that which existed before pension simplification in 2006. 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.
The list would include regulated investments for which there is some consumer protection in place already and it would not have to be static, with new regulated categories added in future.
Such a list would also have a positive knock on effect on the battle against pension scams because it is often unregulated investment opportunities that are used to lure people into the scam.
Mike Morrison, head of platform technical at AJ Bell, comments:
“It is clear from the FSCS report that the main issue around SIPP advice complaints is not the SIPP wrapper itself but the advice to invest in non-standard asset classes such as hotel rooms in Caribbean holiday resorts, storage pods or car parks.
“These investments have been allowed in a minority of SIPPs following advice from a small minority of advisers. Unfortunately the ‘too good to be true’ nature of the investments turned out to be exactly that.
“These cases cost the industry both in financial and reputation terms. At a practical level they increase the levy all financial advisers have to pay when the vast majority would not go anywhere near these kinds of investments.
“A permitted investment lists is a simple solution to this growing problem and one that is easy to implement. It used to exist before pension simplification and was accepted as a good way of protecting all parties. Advisers and providers were able to work with list and there were very few client requirements that could not be achieved by the investments on the list.
“Making sure that the allowable investments are of a specifically regulated nature could go a long way to stopping the rot that currently threatens to undermine consumer confidence and further increase costs for the industry.”