Advisers have been warned some providers of self-invested personal pensions (Sipps) are not ensuring commercial property is adequately insured when it is put in one of their products.
Questions about the due diligence carried out by Sipp providers has been mounting amid court cases involving Berkeley Burke and Carey Pensions.
But while these cases have focused on non-standard investments, concerns have also been raised about other aspects of due diligence - particularly the insurance of commercial property.
Trevor Palmer, commercial development specialist at NFU Mutual, said he saw "many instances" where cover was inadequate, particularly among smaller Sipp providers.
He said: "I frequently see Sipp and Ssas providers dropping the ball when it comes to the ongoing protection of the investment.
"How providers address this varies considerably and their lack of knowledge in general insurance commercial property owners products could have a significant effect on the investment should an insurance fail in the event of a fire or other major disaster."
Mr Palmer said the problem was that IFAs often did not have a deep knowledge of the general insurance market which could lead to them "dropping the ball on the final hurdle" by not insuring the property adequately.
He warned that if commercial property was not properly insured, this could lead to claims being declined and savers being without retirement savings.
The number of complaints about Sipps received by the Financial Ombudsman Service has continued to grow, with 1,754 new cases in the first two quarters of the year.
A spokesman for the Financial Ombudsman Service said it was very rare for consumers to complain about this issue, meaning it was usually providers themselves who would have cause for complaint.
But the Financial Ombudsman Service stated it was unlikely to handle cases from Sipp providers because of the restrictions on who could lodge a complaint with the organisation.
Tobias Haynes, a solicitor at FS Legal, said: "The provider effectively owns the commercial property when it is put in a Sipp and as a result it is their responsibility to make sure there are adequate protections in place.
"The potential issue on that is that it does leave all sorts of problems for investors such as claims being refused if the policy is not suitable."
There has been a reported surge in the use of commercial property in Sipps, with Xafinity Sipp and Ssas reporting a 20 per cent increase in purchases of this asset in pensions.
Martin Tilley, director of technical services at Dentons, said: "I can't speak for the rest of the industry or share their concerns, but at Dentons we have some specific processes in place.
"For commercial property, we do offer a specialist block insurance policy which is designed specifically for Sipp and Ssas ownership of commercial properties.
"Clients are not obliged to use it but if they don't, we will check the alternative policy adequately covers all the risks of a Sipp/Ssas landlord.
"We require sight of an annually paid in advance certificate of insurance as part of our annual property admin checklist.
"We would consider ensuring the property is appropriately insured to be one of the basic due diligence requirements."
A spokesman for the Association of Member-Directed Pension Schemes, said: "Insurance of properties in pensions is essential and we as a trade body would always advocate that if external insurance is used that it is checked to ensure that it is sufficient to protect the members retirement savings should the worst happen to the property.
"That said, we are unaware of any major issues that have occurred and as such believe that our members are doing what they should with respect to this issue."
In his Berkeley Burke ruling, Mr Justice Jacobs listed four instances when he felt a Sipp operator should intervene;
1) when the proposed investment is not eligible for the tax benefits of being put in a Sipp.
2) when the rules on what can be put into a Sipp change.
3) when the provider receives information which casts doubt on the integrity of those promoting the investment.
4) when the Sipp provider has learnt of problems, such as a possible insolvency, which affect the proposed investment.
The Financial Conduct Authority did not respond to a request for comment on issues with commercial property investment in Sipps.
damian.fantato@ft.com
