FSCS pays out £22.5m on failed Sipp

FSCS pays out £22.5m on failed Sipp

The Financial Services Compensation Scheme has paid out £22.5m on 718 claims against embattled self-invested personal pension provider Guinness Mahon.

The lifeboat scheme told FTAdviser it has received 1,149 claims to date against Guinness Mahon Trust Corporation and the 718 claims it has paid out on relate to Sipp transfers.

Meanwhile, 180 claims have been declined but 251 are still being reviewed, meaning the final bill could be a lot higher.

The FSCS said it was aware that IFAs had recommended clients to transfer their existing pensions into a Guinness Mahon Sipp, and that after the transfer customers had their pension funds placed in high-risk, non-standard investments. 

Some of these have since become illiquid, which means they can’t currently be sold or traded.

The provider defaulted with the FSCS in October 2020.

Adam Stephens and Nick Myers of Smith & Williamson were appointed as joint administrators of Guinness Mahon Trust Corporation Limited in February 2020 but immediately sold the Sipp business and certain assets to Hartley Pensions for an undisclosed sum.

The sale of Guinness Mahon included around 4,000 Sipps and certain other assets but did not include the legal entity Guinness Mahon Trust Corporation Limited which remains in administration.

The Sipp provider entered administration following a raft of complaints about historic high-risk non-standard investments and the alleged lack of due diligence that the provider carried out before accepting these investments into its Sipps. 

This latest £22.5m bill comes at the detriment of the industry which has seen its FSCS levy rocket in recent years as a string of firms failed.

The total industry levy is expected to rocket to £1bn for 2021/21 – marking a 48 per cent rise on the previous year.  

Advice firms are expected to contribute £240m, the same as last year, due to the fact the class is forecast to breach its funding limits for the second year in a row.

Last year, alongside failures such as Greyfriars Asset Management and Pointon York, the lifeboat scheme saw more compensation pay-outs to customers resulting from the failure of London Capital & Finance (LCF). 

There has also been an increase in pension advice claims and additional costs in relation to the transfer of cash and assets from investment firms.

Last month (March 10), Debbie Gupta, director of life insurance and financial advice supervision at the FCA, warned on the ‘unsustainable’ rising cost of the levy.

In September the FCA suggested ideas for reform to ensure polluting firms pay more of the FSCS bill.

These included firms involved in ‘riskier’ sales should hold more capital to avoid defaults in the first place, the same firms should take out ‘more’ or ‘different’ professional indemnity insurance; or those riskier firms simply pay more towards the FSCS.

But no measures have yet been finalised.

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