SIPP  

FSCS receives 213 claims as Sipp declared in default

FSCS receives 213 claims as Sipp declared in default

The Financial Services Compensation Scheme has put self-invested personal pension administrator Avalon Investment Services in default, paying out £264,000 to claimants.

The collapsed Sipp administrator was declared in default last month (January 24) after the FSCS found it was unable to pay claims made against it.

FTAdviser has learned the FSCS received 213 applications for compensation against Avalon and has to date paid a total of £264,000.

Avalon was placed into special administration in February 2016 and was later dissolved in August 2018.

In March 2016, Hornbuckle parent company Embark Group bought Avalon for an undisclosed fee but did not take on the liabilities from an earlier court case against the Sipp.

Embark Group set up a new firm, Embark Investment Services, to take control of Avalon’s £300m of assets and 50,000 clients – of which 1,200 had Sipps.

A declaration of default means FSCS is satisfied a firm is unable to pay claims for compensation made against it. 

This then paves the way for clients of that firm to make a claim for compensation.

The FSCS’s investigation into the Sipp administrator focused on the levels of due diligence carried out before allowing clients to make certain investments using their pensions.

It found that some Avalon clients were advised by authorised advisers to transfer their existing pensions into the Avalon Sipp.  

Following the transfer, the pension funds were placed in high risk, non-standard investments, some of which became illiquid meaning they cannot be sold or traded. 

Other Sipp providers have been hauled up over due diligence failings on clients' investments in the past couple of years.

One of the most prominent legal cases was dropped in October.

The administrators of the defunct Berkeley Burke Sipp dropped its appeal after failing to get sufficient backing to cover the potential legal costs.

The appeal was in relation to a High Court judgement handed down last October in which Mr Justice Jacobs held a Sipp provider could not rely on a perceived duty to carry out business as requested by the client without considering the outcome for the client in line with FCA client protection rules.

He said there were instances when a Sipp operator should intervene before accepting business, including when the Sipp provider has learnt of problems which affect the proposed investment, or those promoting the investment.

Berkeley Burke had contested the decision but dropped its action on October 4.

amy.austin@ft.com

What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.