PLSA calls for end to Sipp charges on failed assets

PLSA calls for end to Sipp charges on failed assets

The Pensions and Lifetime Savings Association has called for an end to charges on self-invested personal pensions that hold failed assets.

In its written evidence to the Work and Pension Committee’s enquiry into pension scams, the trade association said to help people in dire situations after falling victim to a scam the regulator should be asked to ban administration fees on failed investments.

The ban should apply to Sipps in which the only asset held is an investment being investigated or found to be a scam.

That way victims of scams are not made to pay out month after month when they have potentially lost the value of their entire pension.

The PLSA also called for a tightening of rules around who can invest in unregulated assets via Sipps, arguing less sophisticated investors should not be allowed to invest in certain high-risk assets.

The committee's enquiry seeks to find a way to clamp down on the proliferation of pensions scams since the pension freedom reforms of 2015.

Scammers often work by persuading pension savers to transfer their entire pension savings into a Sipp so they can then invest in high-risk schemes, which often result in the saver losing all their money.

But Sipps which hold illiquid assets are unable to be closed, meaning the saver often continues to incur charges despite the asset being essentially worthless.

Scam victims are able to claim up to £85,000 in compensation via the Financial Services Compensation Scheme but the sheer volume of claims is having an adverse effect on the functioning industry.

According to the lifeboat scheme, Sipps and other pension advice claims totalled £161m in the 2019/20 financial year.

Advisers have seen their FSCS levy increase significantly as a result over the past few years in order to pay for the claims.

Back in June, Baroness Nicky Morgan warned the only way to drive down the levy was to prevent the spread of scams and unauthorised firms in the market.

Defined benefit scams

Pension scams also exist in the defined benefit space where unscrupulous advisers give unsuitable pension transfer advice.

While the PLSA agreed the FCA’s ban on contingent charging, which took effect from this month, will “help to stop some of the perverse incentives that exist”, it will not solve the entire problem, it warned.

It suggested the FCA should be asked to introduce a ban on allowing savers to proceed with a DB transfer on an insistent client basis.

This would ensure clients are not being publicly advised one thing whilst privately encouraged to transfer out by an unscrupulous adviser or scammer, the PLSA said.

Trustees were able to halt transfer requests to some degree in the past but in 2016 the case Hughes v Royal London put a stop to this.

The ruling removed the earnings link obstacle between the individual and the provider for the potential new Ssas scheme, making it easier for transfers to proceed.