Hartley Pensions saga: what we know so far

As Stephen McPhillips, technical director at Dentons, notes: “Buying-up one failed self-invested personal pension provider’s book after another in relatively quick succession – and bearing in mind the fact that there appeared to be a lot of so-called 'toxic' assets and little cash liquidity in a lot of those schemes – seemed to me to be an odd model to adopt.

“Not only was there a potential challenge to integrate the acquired businesses and deal with existing toxic investments, but there was also the question in my mind about how Hartley would collect its fees for the ongoing administration work on the Sipp and SSAS books it had acquired.”   

One compliance expert who did not want to be named and has worked in the Sipp market for several years suggests the money to be made from members' annual fees could have been attractive to an acquirer.

He says: "In order for a company to buy a book with a large amount of toxic assets, they have to be reasonably assured that there's enough Sipps within that book that don't have toxic assets."

Additionally, if there are commercial property investments held in the Sipp, not only would the acquiring business be getting the annual fee but they would also be getting annual fees for property administration.

We’ve acted over many years to improve standards in Sipps. As soon as we found issues with Hartley, we moved to protect its customers.FCA spokesperson

Back in late 2016, Hartley Pensions was established and approved as a pensions operator under the Wilton Group.

At the time Sipp capital adequacy rules were coming into force. Conversations were already ongoing between the regulator and different Sipp firms over their appetite for acquisitions of rivals, as it was estimated that the new regulations could see one in five providers leave the market.

Between 2018 and 2020 Hartley bought five troubled Sipp businesses in fairly quick succession: a part of Lifetime's Sipp business in April 2018, Greyfriars Asset Management’s Sipp business in October 2018, Berkeley Burke’s Sipp arm in September 2019, GPC’s Sipp and SSAS business in January 2020, and Guinness Mahon's Sipp business in February 2020.

By March 2022 the FCA had stopped Hartley from accepting any new business, as a result of “serious operational and regulatory issues” identified at the company, and in August 2022 it entered into administration, with UHY Hacker Young appointed as the administrator.

Most recently on February 21, Hartley Pensions was declared in default by the Financial Services Compensation Scheme.

The events surrounding the troubles at Hartley have led many to criticise the Financial Conduct Authority for not stepping in earlier.

Hartley offered a range of Isas, life assurance and pension products including Sipps, SSASs, qualifying recognised overseas pension schemes, and qualifying non-UK pension schemes.

As detailed by the FSCS in a statement in December, Hartley acquired a number of failed Sipp operator books to provide continuity of services to clients who faced uncertainty concerning their pensions when those providers entered administration and the firms were declared in default by the FSCS.

Subsequently, Hartley received a number of complaints regarding its operation of the transferred Sipps.

A number of complaints were also made to the Financial Ombudsman Service, which were upheld on the basis the firm broke regulatory rules "by not acting in the customer’s interest by paying due regard to the interest of its customers and treating them fairly".

The Fos partially upheld the complaints on the basis that continuing to charge fees that were higher for the transferred Sipps than their standard charges was also a breach, even though Hartley was contractually entitled to do so.

The Fos required Hartley to pay a rebate of the difference between the fees charged and those that would have been chargeable under an equivalent Hartley product.

On February 10 2022, the FCA issued an information request from Hartley regarding the investments made by Hartley, the firm’s capital adequacy and the complaints made against it.

Following the ban on accepting new business, the directors of Hartley concluded they would be unable to meet their liabilities and Hartley entered into administration.

Is the criticism against the FCA fair?

John Moret, principal at MoretoSipps, says with hindsight it is hard to understand why the FCA allowed Hartley to acquire the books of distressed Sipps over such a short period of time. 

He adds: “One would have thought they would have ensured that the acquisitions were undertaken in an orderly fashion with full scrutiny and due diligence of the businesses ongoing performance.”

As part of its regulatory duty, the FCA has access to a wide range of data relating to Sipp providers, including capital adequacy position (which must be reported quarterly), exposure to non-standard assets, due diligence processes, exposure to cash Sipp cash holdings and so on.

It also makes frequent requests for data from Sipp providers.

Moret says: “In the past the FCA has requested information from Sipp providers on non-standard assets. The new capital regimes required a lot more information, including details of the number of complaints received – including those with FOs – and potential liabilities.”

One can only begin to imagine their sense of frustration about the whole situation.Stephen McPhillips, Dentons

Martin Tilley, chief operating officer at WBR Group, says: “The Hartley model was complex and brought together multiple individual entities which themselves had failed and therefore needed to be rationalised and constantly fettled for the ongoing business to be a success.”

The FCA says a formal change in control process operated by the FCA is only required when a firm acquires shares or voting rights in an authorised firm or its parent – not as in the case of Hartley Pensions, when a firm is acquiring a book of business, but not the firm itself.

An FCA spokesperson added: “We’ve acted over many years to improve standards in Sipps. As soon as we found issues with Hartley, we moved to protect its customers.

“We remain engaged with the joint administrators to seek the best outcome for Hartley customers. We expect agreement by the end of this month on how those affected will receive FSCS protection. Hartley buying Sipps operated by others wasn’t subject to our approval.

"Acquiring books from other Sipp operators is a commercial decision for a firm to make. We do not encourage firms to adopt any particular commercial strategy but we do expect firms to keep us informed of any potential mergers, acquisitions and takeovers, and we will question firms about their interest in acquisitions and growth plans taking into account information available at the time."

In the event of a Sipp provider collapsing, an administrator is appointed to wind up the business. The book of Sipp clients will often be transferred to (or bought by) an alternative Sipp provider, whose role will then be to continue running the scheme with as minimal disruption to clients as possible.

But the Hartley story has been far from simple.

At the centre of this debacle are desperate clients, many of whom had already experienced the failure of a provider, and who have been unable to exit to another provider. 

Robert Paterson, a partner and insolvency practitioner at Wedlake Bell, says: "The investor monies in the Sipp pensions don't technically form part of the company's assets. They're held on trust for the Sipp holders i.e. the beneficiaries of the pension funds."

Dentons' McPhillips says: “One can only begin to imagine their sense of frustration about the whole situation. Whether or not any of those clients will wish to have matters investigated further, will be for them to decide.”

UHY Hacker Young had been trying to sell the Sipp book to a single operator but was unable to find one company to take on the company's client book for a number of reasons, including:

• the poor quality of the company's records;
• management and employee capacity to onboard such a sizeable book;
• outdated IT infrastructure;
• reputational concerns surrounding the background to the company and why it entered administration;
• the cost of putting in place the requisite infrastructure to onboard the client book; and
• concerns around residual liabilities attaching to the operator from unauthorised payments.

Given that no single operator, or operators, are currently able to take on the entire or blocks of the client book, clients will be required to nominate their own preferred choice of operator to transfer their Sipp to. 

They would then be transferred out on an individual basis to an operator of their choice – a much more costly exercise.

With Hartley now in default, the FSCS can pay compensation on clients' exit charges, but the company is not in default for individual claims.

The exit and administration charge (EAC) is intended to cover costs, including the costs for customers to transfer to other regulated companies where possible, until Hartley’s administration is concluded. It could amount to as much as £37mn. 

As previously reported by FT Adviser, at the end of last month (January 29), the FSCS U-turned on its previous decision and said it would protect Hartley Sipp members by paying compensation for the EAC, so that the administrators would not need to charge Sipp members, as was originally proposed.

UHY Hacker Young has applied to court to ratify an EAC the administrators would make against the assets clients hold within their Sipps. A court hearing date is set for February 29 and March 1.

With court proceedings ongoing and as clients desperately wait for a resolution to the mess at Hartley, there is certainly more to come out of this saga.

Ima Jackson-Obot is deputy features editor of FT Adviser