Sadly, there are enough stories about dodgy investments held in Sipps that have gone wrong that if you are not careful, you can become immune to it. But it is only once you start to consider the extent of Sipp misselling that you start to grasp the scale of the problem.
Financial Services Compensation Scheme levies over recent years have been driven by the volume of Sipp claims. In the last two years alone, the bill for life and pensions advisers, plus interim levies, takes the total cost of Sipp compensation to almost £260m.
Some are hopeful that we maybe nearing the peak when it comes to the level of Sipp claims, given that consolidation in the market will free up more money to carry out the appropriate due diligence on underlying investments. But even if that proves to be the case, the data we already have points to a backlog that may take years to feed through to the FSCS.
Between April and September, the Financial Ombudsman Service received nearly 900 Sipp-related complaints. No doubt thanks to pension freedoms, Sipp transfers are on the rise, and according to data from Origo are up 115 per cent in the two years to March.
Sipp providers are frustrated that claims are being characterised under the umbrella term “Sipp misselling”, when more accurately another acronym is at fault: Ucis.
A lot of these issues are intertwined. The Government unleashing the power of pension freedoms meant Sipps became the vehicle of choice for taking control of investments and accessing a pension more flexibly. At the same time, purveyors of unregulated collective investment schemes
saw an opportunity to push their wares. Sipps and Ucis are a common thread often found in pension scams, which the Government is now belatedly trying to curtail. And so the circle is complete.
Something has clearly gone wrong. Apparently traditional pension funds and investments are just not cutting it. In their droves, savers are turning to diamonds, overseas property, Jatropha trees in Cambodia, storage pods and car parks as the key to their wealth in retirement.
We desperately need to break the cycle on endless Sipp claims falling on the FSCS. A ban on cold-calling is only just the start.
Better regulation of Sipps, and the kind of investments that can be held in them, are the obvious next steps. Advisers cannot keep paying for Sipp failures ad infinitum.
Natalie Holt is editor of Money Marketing