The financial regulator has warned self-invested personal pension operators on leaving "substantial" redress liabilities with the Financial Services Compensation Scheme.
Alarm bells were sounded in a Dear CEO letter sent to Sipp operators yesterday (December 2) which reminded firms of their obligation to take into account any potential financial liabilities when assessing their capital resources.
The Financial Conduct Authority warned insolvent Sipp operators with "substantial unpaid redress liabilities" had often placed a "significant and growing burden" on the industry-funded lifeboat compensation scheme.
The City watchdog said: "The calculations you make should take appropriate account of adverse but plausible scenarios.
"This may include providing redress to consumers in similar circumstances to those who have not yet complained, but may be affected by a root cause issue identified by other upheld complaints or claims."
The FSCS has paid out millions to thousands of consumers linked to collapsed Sipp providers so far this year, including embattled Liberty Sipp, Guinness Mahon and GPC Sipp.
The FCA warned it would be using the Senior Managers & Certification Regime to "engage directly" with accountable individuals at Sipp operators on areas of concern.
Higher charges and scam threats
The regulator also warned it was still concerned some consumers now had Sipps which did not match their needs.
The FCA said: "Consumers with simpler investment needs, for example, are not likely to require the full scope of flexibility permitted by some Sipps.
"That flexibility – particularly for those with smaller pots - can result in higher relative charges, which may not represent good value."
The risk still posed by scams in the Sipp market also featured high up on the FCA's list of concerns, with the watchdog warning a significant number of consumers were still being targeted by scammers.
The regulator added: "Some of the investments made available within Sipps have also turned out to be pension scams or fraud, or have involved unregulated introducers.
"In recent years, several Sipp operators have entered insolvency because redress liabilities have crystallised, or because the costs of defending such claims exceeded their financial resources."
Yesterday the FCA sounded alarm bells after learning some overseas advisers were targeting consumers and recommending they switch a UK pension into an international self-invested personal pension.
It raised concerns consumers could be exposed to high and unnecessary charges as a result and any tax benefits accessed by investing this way were "largely redundant" to those in a UK personal pension scheme.
rachel.mortimer@ft.com
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