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TPAS voices Sipp suitability concerns

After numerous probes by the FSA, The Pensions Advisory Service is now flagging up issues regarding the suitability of advice around self-invested personal pensions.

In TPAS’ annual review, published this week, the service reveals complaints for the year ending March 2009 rose by 10 per cent to 7,746 compared with 7,026 in the previous 12 months.

The biggest cause of the rise in complaints was poor administration with increases in both delays and mistakes contributing heavily to the figures, the report states.

The majority of the complaints concerned individual pension plans while complaints about occupational schemes dropped by 2 per cent compared to the previous year.

In the document, TPAS notes an increase in complaints about Sipps and expresses concern that many of these customers were not using the wider investment choice offered by the product despite the fact they were probably paying higher charges.

It states: “We dealt with a number of enquiries from people with self-invested personal pension plans, some of whom had clearly not understood the level of personal responsibility they had taken on.

“This would appear to indicate that the product may not have been appropriate for them.”

Chief executive Malcolm McLean adds: “There has certainly been an increase in the number of calls in relation to Sipps. People who invest in Sipps, we have always said, ought to be reasonably sophisticated investors.

“The value of a Sipp is to take advantage of the flexibility and other things that it offers and if the customer does not need that or does not want it they probably should not be in a Sipp.

“We have definitely come across people who were in a Sipp without actually realising what the benefits were compared to an ordinary personal pension and were probably paying extra charges in consequence of that.

“We have had literally thousand of calls over the year from people who are dismayed at what has happened to their pension plans because of the downturn in the stockmarket. Many people say they did not even know they were in the stockmarket.

“The same issue applies to Sipps. People knew they were in a Sipp but they were not really sure why, either it just sounded a good idea or more worryingly someone had actually recommended it without checking out whether it was right for them.”

TPAS acknowledges that the tough economic conditions over the past year may have exacerbated the number of complaints the service received.

The report states that a significant proportion of the complaints reflected administrative malfunctions following insurance company mergers and take-overs.

“Problems in integrating systems after a take-over frequently caused delays in the payment of pension benefits and in responding to requests from policyholders.

Complainants also told TPAS that they had experienced long delays in simply trying to get a response to their complaint.

What are your views? Does TPAS’ experience fit with yours? Who is to blame and what should be done about the fact consumers are seemingly continuing to be put into a Sipp when it is not the most suitable product?

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There are 3 comments at the moment, we would love to hear your opinion too.

  1. TPAS voices SIPP suitability concerns
    From the comments in the article it would seem entirely possible that some of these issues relate to personal pensions which are called SIPPs (like the Standard Life contract) but which do not acheive the actual character – or charges – of a true SIPP until required by the client. Until taht point contracts like this carry on quite happily as if they were PPs, with charges which are appropriate to PPs.

  2. Julian Stevens 2nd July 2009 at 5:47 pm

    TPAS voices Sipp suitability concerns
    In my experience, the demand for SIPPs is extremely slight ~ we’ve never had a single client ask for one. There may well be a very few people who actually want the freedom to manage actively a diverse portfolio of investments and who are prepared to take on the responsibility and extra costs that that entails. But most ordinary people simply do not, so for them the suitability of a SIPP must surely be questionable or, at the very least, subject to a considerably degree of suitability testing. A SIPP is a very bespoke investment vehicle suited only to the enthusiast investor. And anyway, how many SIPP’s achieve in practice performance better than a carefully selected and regularly reviewed portfolio of actively managed Unit Trusts? That must surely be the acid test.

  3. Rupert Curtis 3rd July 2009 at 4:19 pm

    TPAS voices SIPP suitability concerns
    It highlights the importance of good independent financial advice and also of clients choosing the right sort of product. At one end of the spectrum, people may be choosing basic SIPPs because they are cheap and sound like a good idea, and then getting themselves into trouble. At the other end, they may find that they are paying excessive fees for a full SIPP which they do not need.

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