Self-invested pension clients exposed to the collapsed life settlements distributor Catalyst through Standard Life will face further delays to payments after the industry compensation scheme admitted talks over tax consequences would see it miss a six-month deadline for payouts.
It was back in July that the FSCS said it was working with Standard Life to ensure Sipp members who make a successful claim are not subject to any adverse tax and HM Revenue and Customs reporting requirements if the compensation scheme makes direct payments into their accounts.
In a notice published online, the Financial Services Compensation Scheme said discussions are ongoing, but that it is hoping to pay Catalyst claimants who invested through a Standard Life Sipp once it hears from HMRC in the next month.
In a number of cases this will mean it may not be able to meet its target of issuing decisions within six months of receipt of an application form. The compensation scheme stated it “regretted any inconvenience this may cause”.
Once it hears back from HMRC, the FSCS and Standard Life will agree the approach for assessing affected claims. There has been no suggestion that other Sipp firms are similarly seeking clarifications from HMRC.
Last year, investors who had money with Catalyst saw a delay in the claims process due to complications in gathering data from various sources.
At that time, the FSCS said it was continuing to work with the provisional liquidators of Arm Asset Backed Securities SA, which was declared in default on 4 December, to gather the information it needs to finalise its claims’ process.
Catalyst was the primary UK distributor of life settlements products manufactured by Arm. It sold sold £54m worth of ARM bonds, which were backed by a portfolio of second-hand life insurance contracts that have since floundered.
Last month, Capita SIP Services wrote to Sipp clients invested in Arch Cru funds via Scottish Equitable, telling them it paid them their redress money in a way that exposed them to a 40 per cent higher rate tax charge, after breaching pension scheme rules.
Capita asked the clients to send back payments from the £54m Financial Conduct Authority consumer redress scheme, or face paying the tax charge.
The letter read: “When we originally wrote to you we should not have given you the option to receive the redress money as a cash withdrawal from your pension plan.
“Unfortunately making a payment in this way does not comply with current HMRC regulations and is an unauthorised payment.”
