By Dr. Daniel Hall
1st March 2018
 

Recent growth in the SIPP industry

With the trends of restructuring defined benefit (company) pension schemes into personal pensions combined with the liberalisation of pension transfers and investments, the Self-invested personal pension (SIPP) market has experienced strong growth in recent years. It is thought that there is currently £230 billion invested in SIPP assets with 1.75 million individuals holding SIPPs. These figures are expected to grow to £350 billion in assets with 2.5 million holders by 2020. However, despite this growth in SIPP assets and holders, the number of SIPP providers is expected to fall from the current number 71 to 50 in 2020. Why is this?

One cause for decline is that it’s just more difficult for SIPP providers to turn a profit in the current low interest rate environment that they operate in. But many financial institutions, other than SIPP providers, are affected by low rates. What is specific to the SIPP providers decline in numbers is what is happening on the ground, or more accurately in the courts and at the Financial Services Compensation Scheme (FSCS). With levies going up, litigation risk increasing and profits being squeezed, many SIPP providers are getting very worried about their future.

Developments at the FSCS ad FOS

Last year, the FSCS introduced a supplementary levy of £36 million (2016/17) to cover the increasing number of payments related to SIPPs. Over £105 million was paid out during this period, up 35% on the previous year). This year the FSCS has announced a further levy of £24 million for 2017/18 for SIPP claims. The problem doesn’t seem to be going away.

Things are also spilling over from the FSCS into FOS (Financial Ombudsman Service). From the latest quarterly FOS report for the three months to December 2017, 546 complaints were made to the FOS about SIPPs leading to a 54% uphold rate. Only payday loans (56%) and instalment loans (63%) reported higher uphold rates than this. Furthermore, for the 9 months (Apr–Dec 2017) FOS opened a total of 1,575 SIPP complaints which is more than the whole of the previous year (1,493) another worrying trend for both SIPP advisers and providers.

Complaints against SIPP providers!

But it’s not just about the increasing number of complaints hitting the FSCS and FOS. It’s also about the nature of those complaints. In the past the complaints were related to advice and aimed against advisers. Now the focus is turning to the SIPP providers themselves. Historically their standard patter has been that if people have lost money in their SIPPs due to poor investment decisions, then it’s a matter between the individual and the financial adviser to sort the problem out. The SIPP provider was merely there to ‘administer’ the scheme. That line is no longer holding, at least at the FSCS. The FSCS recently declared three SIPP firms in default (Brooklands Trustees, Stadia Trustees and Montpelier Pension Administration Services). This ruling is expected to result in £34 million being paid out in claims.

So far the FSCS has received 150 claims relating to these firms with many more expected to follow. The FSCS now argue that the SIPP firms, although administrators, also owed a duty to conduct sufficient due diligence on the investments help in their SIPPs. Where this due diligence has been found to be inadequate a payout could be due.

Specialist team at the FOS

Again, expect to see cases spill over to FOS for SIPP firms that are still active. It is understood that Carey Pensions has settled a number of claims brought against it to the FOS before a final decision was issued. This is a negative precedent for the SIPP providers that could be very worrying indeed. We are also seeing similar activity at FOS with some of our clients. At SippClaims.uk we have a number of matters currently with the FOS’ Special Investigations team for SIPPs for complaints against SIPP providers. On the downside it is taking a long time for these cases to progress through FOS, on the upside however at least they now have a specialist team looking at these, so we should start to see some fair decisions emerge over time.

Berkeley Burke and developments in the courts

If the lid on Pandora’s Box is struggling to be contained at the FSCS and FOS, it could be about to get blown off with developments in the courts. The High Court recently approved a group action against Berkeley Burke SIPP Administration of allegations over mis-sold SIPPs. With 77 claims currently stacked against it, this could mushroom to as many as 1,000+ if the rest of the potential claimants pile in to the group action – and that’s just one SIPP provider.

The claimants are maintaining that Berkeley Burke breached the Financial Services and Markets Act 2000 after unregulated third-party advisers advised people to transfer their existing private or work pension funds into one of their SIPPs. However, many of the underlying investments of these SIPPs were speculative, high risk and wholly unsuitable for most people. By investing in such ‘non-standard’ investment such as self-storage units (Store First) and foreign property developments (think Cape Verde, Brazil and Papua New Guinea), it is no wonder that many people have had their retirement funds wiped out.

Can the SIPP provider really turn a ‘blind-eye’ to this kind of activity and catastrophic consequences? The High Court believes at this point Berkeley Burke has a case to answer. If the High Court rules that the provider is liable, this development should make it easier for people affected to claim their lost pension investment back.

It’s also getting political

Last month the media picked up on the plight of British Steel pension scheme members who were targeted by “vulture financial advisers” after Tata offloaded its retirement fund as part of its £14 billion restructuring exercise. Frank Field MP stated that “Pension holders were fleeced by financial vultures”. The Work and Pensions Select Committee also released a report into this fiasco, levying much criticism against the Financial Conduct Authority (FCA). The police are also getting involved as well.

Many of these steel workers were advised to transfer their gold-plated company pension plans into private pension plans including SIPPs. Active Wealth UK was known to have transferred many of these steelworker funds into the SIPP provider Intelligent Money. Momentum SIPP has also declared that over 100 steelworker pensions had been invested or in the process of being transferred. With Active Wealth UK recently being put into administration, the FSCS could be putting their levies up yet again. With the likes of steelworkers being the victims this time, this could quickly get very political and very messy.

Worrying times indeed if you are a SIPP provider.