Labour MP Frank Field is asking awkward questions of the Financial Conduct Authority over its regulation of self-invested personal pension (Sipp) providers, saying it isn’t clear what repercussions these firms will face if they flout the watchdog's rules.
Mr Field, chair of the work and pensions committee, last week (22 May) wrote to Megan Butler, director of investment, wholesale and specialist supervision at the FCA.
He asked several questions about self-invested personal pension products, after the committee found them to be “the primary vehicle used by unscrupulous advisers to channel individuals’ pension savings into unsuitable investments” during its examination of defined benefit (DB) transfers.
He said: “Although the FCA has warned Sipp providers about what it expects of them regarding due diligence, it is not clear what repercussions a provider faces if these expectations are not met.
“Primary responsibility for paying compensation for mis-selling falls to the financial adviser, who can evade this by folding their firm.”
The committee published a report about the British Steel Pension Scheme (BSPS) transfer scandal in February, concluding that many steelworkers were “shamelessly bamboozled” by financial advisers.
FTAdviser reported in November that several members of the British Steel Pension Scheme (BSPS) appeared to be transferring out their pensions after being lured by cheap deals by unregulated introducer firm Celtic Wealth Management & Financial Planning, which then referred the clients to advice firm Active Wealth.
It emerged in February that the firm had advised as many as 300 BSPS clients, of which 64 proceeded to transfer out of the BSPS scheme into alternative pension arrangements without taking further advice.
Some of these clients saw their pension pots being invested in Sipp providers, such as Momentum Pensions, and managed by Gallium Fund Solutions, a Kent-based discretionary investment manager.
Mr Field argued that the recently disclosed data by the FCA on pension transfers, which more than doubled in 2017 to £20.8bn, “heightens concerns about the destination of these funds”.
He also noted that the Financial Services Compensation Scheme (FSCS) expects Sipp-related compensation claims to continue rising, leading to an increase in compensation costs.
In May, it was announced that life and pensions advisers will pay an extra £52m towards the cost of running the FSCS, as the overall levy is pushed up 21 per cent to £407m.
In light of this, Mr Field wants to know what is the value and proportion of funds transferred from DB pension schemes into Sipps in the last two years which are held in the form of non-standard or unregulated investments.
He also questioned Ms Butler on what “due diligence are Sipp providers required to conduct on the investments that they provide access to, and how does the FCA monitor this”.
Mr Field also enquired what are the regulator’s powers to punish Sipp providers, in what circumstances can these firms be deemed liable to pay compensation to a customer whose funds ended up in an unsuitable investment scheme, and if the FCA is “considering the option of barring unregulated or non-standard investments altogether from inclusion in Sipps”.