13 September 2017 | Comment | Article by Ria Coleman
What is a SIPP?
Self-Invested Personal Pensions (SIPPs) are pension schemes which grant individuals more control over their investments. Switching from a traditional pension to a SIPP allows investment in a much wider variety of investments than was possible with a traditional private pension. However, where the primary motive is to invest in an unregulated investment, there is a risk of substantial financial loss.
But exactly what is a SIPP? A SIPP is not an investment in itself, but rather a “wrapper” for investing in other products. Our clients have used SIPPs to invest in a wide range of investments (such as overseas property or forestry schemes). A SIPP provider then administers the investments (usually for a monthly or annual fee).
As of 2014, the Financial Conduct Authority (FCA) reported there to around £100 billion of pension assets administered through SIPPs.
The danger of SIPPs
SIPPs were introduced to offer flexibility, allowing experienced investors to potentially maximise their pension pot. Through a SIPP, it is possible for individuals to invest in investments which are not regulated by the Financial Conduct Authority. These investments are high-risk, and often unsuitable.
The “DIY” pension format appealed to those who wanted to know exactly where their money was going.
However, there has been an increasing number of complaints regarding SIPPs in recent years. In the first quarter of 2017, the Financial Ombudsman Service (FOS) reported 521 new SIPP cases. 181 of these were passed to the Ombudsman for a final decision. In its 2016/17 annual report, the Financial Services Compensation Service (FSCS) reported the cost of SIPP-related claims to be £105 million.
Complaints stem from a variety of issues, including inadequate due diligence by SIPP providers, lack of or negligent financial advice and unsuitable underlying investments. Our clients have seen the value of their pension pots plummet as a result.
Common SIPP investment claims
There are a number of common investments that crop up in the claims we pursue:
A number of our clients have been lured into investing in seemingly sound, luxurious overseas resorts and properties owned by the likes of Harlequin and the Resort Group. These clients have suffered substantial financial loss, as a result of the properties not being built or by a gross exaggeration of the projected profits. Harlequin entered into bankruptcy on 3rd March 2017, and KPMG estimates there to be $299 million in outstanding claims against them.
The purchase of storage units and parking spaces promised to be an investment which could provide guaranteed rental income for many of our clients. In reality, market demand was exaggerated, making it difficult for individuals to make a profit or recoup their investment.
Investment in new, sustainable fuel alternatives appeared to be a modern and attractive investment for some of our clients. However, a number of sham companies have used this front in order to exploit investors. Examples include Sustainable Agroenegy and Elysian Fuels.
For further information, see our article in respect of Elysian Fuels here: https://www.hughjames.com/blog/elysian-fuels-hmrc-investigation-centres-on-sipp-provider-james-hay.
Farmland and forestry schemes were advertised as lucrative, low-risk, environmentally friendly or ‘green’ investments. Notably, Global Forestry was promoted as a safe, ethical investment in Brazilian teak plantations. Investors were offered the opportunity to purchase plots of land and harvest steady profits. However, this proved to be financially unviable.
If you think you were mis-sold any of the above SIPP investments, visit our financial mis-selling page for more information and to get in touch for a free, no-obligation consultation.