Yesterday, the FSCS agreed to declare the SIPP and SSAS provider in default, opening the way to it meeting the cost of exit charges.

The move will allow 16,000 Hartley Pensions clients to move their funds to other providers after the FSCS agreed to pay the exit costs.

These fees were initially estimated at £36m in January but have already risen by £2m to an estimated £38m with the potential to rise higher.

The exit costs do not cover any future claims by Hartley Pensions clients on the Financial Services Compensation Scheme (FSCS), if it allows claims to go ahead.

In a statement the FSCS said: “The FSCS is providing compensation which will fund the costs of the Joint Administrators’ exit strategy for all Hartley’s SIPP members (around 16,000). The total amount needed to fund the exit strategy will depend on a number of factors, including the amount of future costs incurred. FSCS currently estimates that the total compensation for the exit strategy will be around £38m.”

The FSCS says that Hartley SIPP customers do not have to make a claim to the FSCS for the exit charge compensation to be paid. The FSCS has agreed to pay the exit charges to avoid the cost falling on Hartley clients, potentially wiping out much of their pension savings.

Under the agreement struck with administrators UHY Hacker Young, the FSCS will compensate customers by funding the costs of the Joint Administrators’ exit strategy for Hartley SIPP customers.

The FSCS has paid the compensation into a trust account which will be used by the Joint Administrators to pay the costs. Because of this the Joint Administrators will not need to charge SIPP members the exit and administration charge that was originally proposed. The FSCS made a U-turn after realising that Hartley clients would face high costs to move their money.

It is believed likely that many Hartley clients will move their pensions to other providers, a move that may ultimately avoid some compensation costs falling on the FSCS if Hartley had collapsed completely. An orderly transfer was seen as the best option, despite the high cost.

The FSCS says that an annual management charge will continue to be charged by Hartley to cover the day-to-day management of the SIPPs.

Hartley’s SIPP members will be contacted in due course about the plans.

The FSCS says it is possible that Hartley SIPP members may have claims against Hartley for matters other than the costs of the exit strategy, however the FSCS will not open to claims for the “time being” to allow the FSCS and the Joint Administrators to prioritise the transfer process.  

Compensation costs will be funded through the FSCS’s industry levy and costs for failed SIPP operators generally fall to the Investment Provision class.

In January the FSCS confirmed that it will pay the exit and administration charge (EAC) that the joint administrators proposed to levy on Hartley Pensions Limited (HPL) customers, despite earlier saying that it could not do this.

The U-turn came about after the FSCS, “obtained and considered further evidence,” it said.

Hartley Pensions went into administration in July 2022 after several regulatory interventions and a failure to find a buyer. It had been subject to a number of FCA requirements in early 2022 due to, “serious operational, financial and regulatory issues.”