I touched on this in my column for Financial Planning Today in December but the anniversary provides an opportunity for me to return to my favourite subject.
Just recently my attention was drawn to an article in a financial trade magazine where it was stated: “It goes to show that financial advisers, SIPP providers and third parties need to be holding themselves to account and realise that their gung-ho attitude to the British public’s pensions and hard earned money needs high due diligence at all times.”
It went onto predict that 2020 will be the year that the market finally gets to grips with the toxic end of the SIPP market. No surprise that the article was written by a lawyer from one of the leading claims management companies who are turning their attention to the SIPP market now that they have largely exhausted the supply of PPI claims.
This subject has gained further prominence in the light of the proposed FSCS levy increase which is justified on the back of a number of SIPP operators being declared in default since 2018 through a failure “to exercise reasonable care and skill, breaching regulatory requirements and/or breaching trustees.” These comments and those in the article mentioned above seem to be based on the decision reached in the Berkeley Burke case in October last year.
I recently prepared a policy paper on “clarifying the role and responsibilities of a SIPP operator”. I referred to both the Berkeley Burke case and the Carey Pensions case and pointed out that the Berkeley Burke case is the first FOS, or Pensions Ombudsman’s (POS) determination where a complaint has been upheld against a SIPP Operator for losses arising from an investment on the grounds of failure by the SIPP operator to carry out sufficient due diligence on that investment. Previous adjudications had rejected similar but not identical complaints.
In particular a number of POS determinations concluded that the steps taken by the SIPP operator were sufficient to meet the requirements imposed on them by the regulator and HMRC for such investments at the time and that the POS “cannot apply current levels of knowledge and understanding, or present standards of practice, to a past situation.”
Many of the investment failures that have given rise to claims occurred during the period 2009-2012. This is precisely the time period between the FSA’s first and second thematic reviews of SIPP Operators.
The first thematic review in October 2009 made no reference to investment due diligence failures – and that was because the vast majority of SIPP operators at the time did not carry out the level of due diligence that is now being claimed was required.
At the time most SIPP operators felt that compliance with the HMRC rules regarding taxable property was all that was necessary in this respect. It was only when the second thematic review’s findings were published in October 2012 that it became clear that there was an expectation that SIPP operators should assess that, “Investments are appropriate for personal pension schemes”. Unfortunately no clarification was provided on what was an “appropriate” investment.
Given the importance now being given to failures with investment due diligence it is very strange that in 2009 the subject was not even mentioned by the FSA in their report. It is understandable that SIPP operators were confused and no surprise that AMPs –the trade body representing SIPP operators – wrote to the FCA in 2013 about “ambiguous comments from the FSA about who has ultimate responsibility for investment choice”.
I believe the historic issues are far from clear and will ultimately only be resolved in a court of law. If and when the Carey Pensions judgment is received this may shed some light – it is extraordinary that it is nearly two years since this case was heard and the delay has helped fuel the uncertainty. But there are features of the Carey case that do not necessarily apply in other situations and it may well be that one or more further court cases will be required to establish the precise legal position.
In the meantime in my policy paper I make two proposals regarding the future:
- All “non-standard” assets should only be available to “sophisticated” or “High Net Worth” investors. The current definition of these two terms may need to be reviewed as will certain investments that are currently deemed “non-standard”. All “standard” investments would be deemed “appropriate.”
- A clarification of the investment due diligence requirements which in future would not be required for “standard” or “appropriate” investments.
I believe these two proposals would provide the clarity that SIPP operators and all parties involved in the SIPP market need to ensure its proper governance and to provide good outcomes for all types of SIPP investor.
Continuing delay in addressing these issues will create more uncertainty and simply encourage larger and more extreme claims putting the FSCS under even more pressure and potentially leading to yet higher levies.
In turn this will further undermine a market which has helped and continues to assist millions of UK consumers save for their retirement. Thirty years after the first SIPP was established it’s about time that these issues were resolved once and for all.
John Moret is principal of MoretoSIPPs consultancy and one of the UK's most experienced SIPPs experts, commentators and speakers. He has worked for Suffolk Life and several other SIPPs providers. He is chair of advisory business Intelligent Pensions and CX insight business Investor in Customers.