Emma Ann HughesJun 16 2017

Can a Sipp really be mis-sold?

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Once upon a time, self-invested personal pensions (or Sipps for short) were painted as the cure for all past personal pension ills.

Fed up with some provider dictating the risks you should take with your savings to accrue a retirement income?

Here was a pension wrapper – importantly with 'self-invested' in the product’s title - that allowed you to take control.

Finally rather than have a pension provider choose how much of the pound in your pocket you should be risking at different stages in your life, you could decide how adventurous you wished to be when accruing cash to spend in later life.

Investors who choose to opt for this type of pension are therefore told by the title of it that they need to be self-aware and engaged with what is going into it.

Like many a former financial services golden child in recent years the once shiny and new name of Sipps has started to become tarnished.

There have been increasing numbers of complaints about this product heading to the Financial Ombudsman Service and Financial Services Compensation Scheme in recent years.

Many of these complaints are due to the wrapper being used to plough cash into unregulated and non-mainstream investments and the saver not grasping the risks they were taking.

This week the once-shiny name of Sipp continued to be dragged through the mud in a way that attracted the nation’s attention as former England captain Alan Shearer headed to court over his pension wrapper.

Within a day of launching a £9m High Court damages claim arguing he was given “negligent” financial advice, and after grabbing countless headlines, Mr Shearer agreed a settlement.

Mr Shearer, 46, had sued financial adviser Kevin Neal and pension specialist Suffolk Life.

The terms of the settlement, which was reached the day Mr Shearer was set to talk in court about how he felt let down by the Sipp provider and his financial adviser, were confidential.

They need to ask questions about what is the likelihood of them losing their money otherwise really what they have signed up to isn’t a Sipp at all.

Lawyers had indicated ahead of the settlement being reached that the case centred on Mr Shearer’s pension being worth around £4m.

Mr Shearer, now a pundit on Match of the Day, said he had lost millions of pounds, branded Mr Neal “careless” and “dishonest” and claimed Suffolk Life breached fiduciary and regulatory duties.

Both Mr Neal and Suffolk Life, based in Ipswich, disputed his allegations. Mr Neal said the claims were “just driven by pure greed and ego”.

Suffolk Life lawyers said Mr Shearer faced “very serious obstacles”.

Because a deal was struck, all we are left with now is more negative headlines about Sipps.

But is it right to bash this product and (should I be saying this) can this wrapper truly be mis-sold or is this an example of why it is incredibly wrong that there is no “buyer beware” regulations in financial services? 

A self-invested personal pension is the name given to the type of UK government-approved personal pension scheme, which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue & Customs.

They are an individual contract between an individual and the pension provider where the investor clearly feels they want much wider investment powers than are generally available for personal pensions and group personal pensions.

The wider investment powers can allow savers to invest in a wide range of assets, including quoted UK and overseas stocks and shares, unlisted shares, collective investments, investment trusts plus property and land.

A Sipp can also a saver to borrow money to purchase some investments. For example, a Sipp can raise a mortgage to part-fund the purchase of a commercial property.

Such properties would normally then be rented out and the rental income, received by the Sipp, can be used towards servicing the mortgage repayments and the costs of running the property.

Not all Sipps allow you to invest in the full range of allowable investments. Sipps that hold specialist investments (such as property) may be liable to pay higher charges than schemes that hold ‘mainstream’ investments.

And to me this is the crux of it - Sipps as a wrapper aren’t the problem, it is providers and advisers who have failed to flag the risks of non-mainstream investments that can be contained within this product.

It is the investments contained within a Sipp that can be mis-sold plus providers and advisers can wrongly push this type of product to people who may be better off with just a standard personal pension.

I would argue the brewing problems with Sipps is why we really do need regulators to recognise in some cases it isn’t good enough to plead ignore – sometimes the investor needs to be told they should have had some sense of buyer beware.

With a Sipp it says on the tin that it is self-invested. Investors who choose to opt for this type of pension are therefore told by the title of it that they need to be self-aware and engaged with what is going into it.

They need to ask questions about what is the likelihood of them losing their money otherwise really what they have signed up to isn’t a Sipp at all - it is a discretionary managed personal pension.

emma.hughes@ft.com