The UK pensions industry has been under the microscope in recent years, particularly following George Osborne’s 2014 pension reforms. Because of these reforms, Self-Invested Personal Pensions (SIPPs) have become a popular pension product. The introduction of flexible drawdown options and changes in inheritance tax rules helped drive more people towards SIPPs. However, the pace of change, new drawdown options, and the ability to transfer from different pension schemes also confused many people.
What is a SIPP?
As the term suggests, a SIPP is a personal pension fund which offers you an enhanced degree of control over how your funds are invested. Permissible SIPP investments include:
- Unit trusts
- Open-Ended Investment Companies (OEIC)
- Exchange-Traded Funds (ETF)
- Investment trusts
- Corporate bonds
- Commercial property
It is important to note that not all SIPP providers/administrators will accommodate the full range of permissible investments. You should check with your proposed SIPP administrator before setting up your pension fund.
The UK SIPP market
Even though SIPPs have been around since 1990, it is only in recent years that we have seen massive growth in this sector. Consequently:
- The SIPP market is currently growing at circa £1.9 billion a year
- The overall value of UK SIPPs is more than £175 billion
- There are more than 1.5 million active UK SIPPs
Unfortunately, the eagerness of many individuals to transfer into a SIPP has raised concerns about pension mis-selling.
How do I know if my SIPP was mis-sold?
Pension fund investments should be checked continuously but considered on a long-term basis. Consequently, many people will only become aware of potential mis-selling when they approach retirement. So, what are the typical tell-tale signs of potential SIPP mis-selling?
The new and exciting pension changes brought in by George Osborne created a considerable surge in SIPP investment. For several reasons, many financial advisers have consequently been held to account for mis-selling SIPPs. Some of the more common scenarios include:
- Steering you towards SIPPs when potentially better options were available
- Recommending a SIPP wrapper while failing to recommend specific long-term investments
- Consolidation of pension arrangements into a SIPP to your long-term detriment
- Failure to advise you of high-risk investments
- Pressurising you into choosing a SIPP
- Basing SIPP investment advice on tax reasons rather than long-term pension benefits
- Providing vague/unclear advice whether or not this was deliberate
- Failure to inform you of long-term charges which may significantly reduce your pension fund
- Lack of follow-up services such as annual SIPP reviews
- Your financial adviser was unregulated, and therefore not authorised to offer pensions advice
- Failure to inform you of loss of benefits when transferring from a final salary pension scheme
These are the more common scenarios where you may have grounds for compensation due to SIPP mis-selling.
Transferring from a final salary pension scheme
The advice given to members of final salary pension schemes has had much scrutiny in recent times. Commonly referred to as a defined benefit pension, financial advisers incorrectly advised many people to switch to defined contribution/money purchase arrangements. In effect, they were switching from a guaranteed pension, based on their final salary, to a pension structure based on what their investments were worth upon retirement.
There are now various legal safeguards in place to protect against such advice. For example, anyone with a final salary pension scheme valued at more than £30,000 is now legally obliged to take professional financial advice. This must be confirmed in writing, and a copy of the correspondence sent to the receiving pension scheme.
Claiming compensation for a mis-sold SIPP
It is important to stress that you can still claim compensation regardless of whether the financial adviser in question is still trading. If you believe financial advice to take out a SIPP was flawed, causing monetary loss, you should look to seek compensation. We will now look at the various courses of action.
If the financial adviser is still trading…
You should directly approach the financial adviser that sold or recommended your SIPP. You must make them aware of your concerns, making it clear:
- You are making a formal complaint
- The basis of your complaint
- Why you believe your complaint to be valid
- Estimated financial losses
When contacting the financial adviser, you should also send as much evidence as possible to support your claim. The adviser must respond to your correspondence within eight weeks.
Their response should clarify whether they:
- Agree with your complaint – and what financial compensation they are offering you
- Require more time to investigate your complaint
- Disagree with the basis of your complaint
Whether the financial adviser needs more time or disagrees with you, they must provide a detailed response to your complaint. Where the financial adviser has agreed with your complaint, they should provide details of compensation. The degree of compensation should return your pension finances to their position before the inappropriate advice.
Complaining to the Financial Ombudsman Service
If you're unhappy with your financial adviser's response, you can escalate your complaint to the Financial Ombudsman Service (FOS). Reasons to involve the FOS include:
- No response from your financial adviser
- You disagree with their conclusions
- Inadequate compensation offer
The FOS would then request evidence and feedback from all parties, before making a definitive ruling. It is worth noting that the financial adviser is legally obliged to respect the judgment of the FOS. The FOS can award compensation up to £350,000 against your financial adviser.
If your financial adviser has ceased trading…
Even if your financial adviser has ceased trading, you can still pursue a mis-sold SIPP complaint. You should do this via the Financial Services Compensation Scheme (FSCS). When approaching the FSCS, you will need to provide:
- Details of your financial adviser
- Evidence of SIPP mis-selling
If the FSCS upholds your complaint, they can award up to £85,000 in compensation. This scheme is funded through levies paid by financial companies authorised to trade in the UK.
What is the scale of SIPP mis-selling?
We know that thousands of people were mis-sold final salary pension transfers, resulting in hundreds of millions of pounds in compensation. The scale of SIPP mis-selling is as yet unclear. However, some experts believe it will eventually dwarf the final salary pension transfer scandal. To put this into perspective:
- In 2016, a staggering £375 million was put aside by the FSCS for future mis-sold SIPP claims - it looks as though this won’t be anywhere near enough!
- The FSCS paid out more than £100 million during the financial year 2018/19 – with £34 million relating to advice given by just three firms!
- The FSCS made total compensation payments of £87 million in the financial year 2019/20
As we touched on above, due to the long-term nature of pension arrangements, many cases of mis-selling will only be discovered when approaching retirement. Therefore, the compensation levels put aside for mis-sold SIPP claims could increase dramatically in future.
Strictly speaking, you have six years from receipt of pension advice to make a formal complaint. However, due to pension investments' long-term nature, it may take longer to discover inappropriate advice. If later, you will have three years from when you found there were issues to make a formal complaint.
Act quickly; time is of the essence
If you believe you have been mis-sold a SIPP or received inappropriate pension transfer advice, you must take immediate action. Where possible, you should always keep copies of correspondence received from your pension advisers. For complaints, you will need to provide as much evidence as possible.