James Coney  

Sipp flood becomes a torrent of trouble

James Coney

James Coney

The scale of the self-invested personal pension mis-selling scandal seems as bad – if not worse – than I predicted last month. 

In my first column of this year, I warned of a flood of complaints that companies could face.

I thought the payouts would total tens of millions. But according to a Sunday Times investigation, it now looks like the final bill could run to hundreds of millions of pounds. Do not be surprised to see a number of providers going bust.

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The total number of claims submitted is now in the thousands. At last count the Financial Ombudsman Service was upholding two in every three cases it saw.

I said the ombudsman had to be careful what it wished for when it upheld the case against Berkeley Burke for an investor who had lost £27,000 in an investment in a Cambodian forest that turned sour. It has a whole new workload on its hands now.

I was critical of its initial decision against Berkeley Burke, mainly because of the warnings the company had given the investor. He had received at least three written warnings that the unregulated investment he was hoping to put into his Sipp was very dangerous. 

The investor had found the opportunity on the internet, and had even got in contact with the introducer himself.

My question was: given he had acted independently, why should Berkeley Burke be liable? Surely personal responsibility has to play some part in investing?

Well, the mist is slowly clearing. Further digging reveals a whole series of concerns over unregulated investments in Sipps.

It does not revolve around the actual sales process, or indeed anything to do with the type of investment, but more around whether these types of investments were suitable for a pension.

This means it does not matter who made the decision to take out the investment, just who allowed it to be put in a pension wrapper.

Toxic investments sold by shady middle men were suddenly given legitimacy by being placed inside a regulated product.

And on that basis, Sipp providers have a lot of difficult questions to answer. Those up to their neck in it are not helped by rivals that refused many unregulated investments.

That some companies judged that investments in Costa Rican plantations, storage units and Australian farmland were not appropriate, merely makes those who did take them on seem all the more foolish.

The Sipp providers argue there is no way they could have checked the provenance of every single investment they accepted.

But that ignores the fact they were more than happy to take 1 per cent, typically, of assets under management from them. This charging structure was appealing to some providers, even if the wrapper itself was not right for the individual.