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Consumer Panel raises concerns over ‘high-risk’ Sipps

The FCA Consumer Panel has raised concerns with the regulator’s board about the risks associated with Sipps.

Consumer Panel chair Sue Lewis says the increase in Sipp claims to the Financial Services Compensation Scheme is a “worrying trend” and suggests consumers do not understand the risks involved.

Minutes of the FCA’s July board meeting, which were published last week, show that the board had a discussion around the Consumer Panel’s concerns about “potential consumer detriment from the increasing number of consumers switching from a conventional scheme to a Sipp”.

The minutes show FCA director of supervision Clive Adamson agreed to liaise with the panel to explain how the regulator is addressing issues in this area.

Lewis says: “The FSCS has seen a growing number of claims from consumers who had been recommended by their advisers to transfer their money from an occupational pension into a Sipp.

“This is a worrying trend. Sipps are often high-risk and illiquid and can be costly to run. 

“The Consumer Panel is not against Sipps but consumers really need to understand the risks they are taking before investing their pension savings in these vehicles. The increase in claims suggests they do not.”

In July, the FSCS reported a 15 per cent increase in life and pensions intermediation claims, from 3,691 in 2012/13 to 4,248 in 2013/14. It said this was mainly down to the rising number of claims relating to advice to transfer from occupational schemes to Sipps.

Timeline of Sipp advice warnings

August 2014: FSCS warns advisers could be hit with an interim levy for 2014/15 due to increased compensation related to Sipp claims

July 2014: FSCS says it is “increasingly concerned” about the growing number of Sipp advice claims, which has led to a 15 per cent year-on-year rise in life and pensions intermediation claims

May 2014: FOS says it received more than 1,000 Sipp complaints in 2013/14, up 49 per cent year-on-year

April 2014: FCA issues a further warning to advisers encouraging clients to invest their pension in unregulated products through Sipps

January 2013: FCA raises concerns that some firms advising on pension transfers to Sipps without assessing the advantages and disadvantages of the underlying investments

Adviser view

Somal-Aj-Aurora-2014-600x385.jpg

Aj Somal, chartered financial planner, Aurora Financial Planning

Sipps advice is a topical issue and it is right for the Consumer Panel to raise this with the FCA’s board. Clients transferring into a Sipp must be aware of the higher charges involved. 

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. What a stupid thing to say, it is not the SIPP that is high risk, but the investment that is held within it! You can set up a SIPP and just keep the money in a bank account or even government bonds (GILTs), you can’t get much safer than that. Also there are some SIPPs in the market which only cost £150 per year to run, you can’t get much cheaper than that either.

    The worrying trend is actually that you have more and more of these consumer panels who don’t really understand what they are talking about.

  2. ASBO beat me to it !

    Is this more to do with the investments held in the SIPP rather that the wrapper its self ? I would suspect so !!
    Ms Lewis needs to do a bit more research before she opens said trap ! or at least qualify what she means

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