The self-invested personal pension (Sipp) turns 30 this month, but it has come a long way since it was first introduced in 1990.
Launched as a relatively niche product to allow wealthy customers greater choice over the investment of their pension contributions, the past three decades have seen the Sipp move into the mainstream.
However, in becoming more ‘the norm’ the intention for the Sipp has been lost in translation – the lines between a personal pension and a Sipp have been blurred, resulting in many investing in an unsuitable product.
“It is justified to say that Sipps aren’t the real issue here, and they are still a very valid and important part of the pensions landscape,” explains Claire Trott, chair of Amps.
“We need to be mindful that different clients require different levels of flexibility and Sipps are not a one-size-fits-all product.
“A Sipp, if appropriate, should be chosen for the benefits that the client needs and wants, not just because it offers all the options in the market, which is also why rating systems can be misleading.”
Mis-sold or misunderstood?
Recent years have seen claims made against Sipp providers by investors rise exponentially.
Data from the Financial Ombudsman (Fos) shows that the number of complaints referred to the Fos increased 86 per cent in 2018-19.
Stephen McPhillips, technical sales director at Dentons Pension Management, says: “There is no doubting that Sipps have earned an unenviable reputation in certain quarters over recent years.
"We only have to look at the plethora of recent provider failures, the subsequent impact on the Financial Services Compensation Scheme (FSCS) and continuing Sipp-related complaints to the Fos.
“Allied to these is the increased activity amongst claims management companies, eager to assist clients who feel that they have a valid claim against Sipp providers – be that around mis-selling, lack of and/or poor due diligence on investments and so on.”
Berkeley Burke is perhaps the most high profile of cases when it comes to the Sipp industry and the troubles it is facing.
"A few years ago a complaint was made against the provider that it had not carried out effective due diligence before a client transferred their pension into a Berkeley Burke Sipp and invested in a high-risk investment called Sustainable AgroEnergy.
The initial complaint was upheld by the Fos and Berkeley Burke appealed.
However, last year the Sipp provider entered administration, claiming it could no longer defend claims in court.
“Regardless of whether clients are tempted by surprisingly high potential investment returns, attractive side-benefits of making the investment or any other measure, the fact remains that some Sipp members made investment choices that turned out to be bad ones,” highlights Mr McPhillips.
“The question of whether the Sipp provider should have allowed the client to have made that particular investment is another matter.”