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
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.