Advisers are becoming increasingly cautious in dealings with the self-invested personal pension (Sipp) market and are shunning firms that can’t prove an unblemished track record, FTAdviser has found.
A number of providers have had their hands dirtied by allowing unregulated non-standard investments which later failed in their Sipps, losing investors millions.
Last week FTAdviser revealed Sipp provider Lifetime Sipp was forced to enter administration as past exposure to the likes of failed overseas property investment Harlequin came home to roost.
Since many of those investments were made, the market has faced a period of increased scrutiny from the regulator, including tough new capital adequacy rules for Sipp providers holding non-standard assets.
This has meant some providers, such as Liberty Sipp and James Hay, stopped accepting those investments altogether.
James Hay's parent company IFG is currently embroiled in a battle with HMRC over legacy non-standard investments in which some of James Hay's clients invested, mainly a structured bio-fuels investment known as Elysian Fuels.
James Hay estimated in an update to the market in January that the maximum potential sanction charge for the overall 2011-2015 period when it allowed Elysian would be about £20m, assuming all Elysian Fuels shares are deemed valueless at inception.
Similarly Liberty has suffered a difficult few months as a result of some of the more unusual investments it allowed onto its platform. named
In November a BBC Radio programme alleged the provider had allowed millions of pounds of pension money to enter its Sipps to be invested in Gravity Childcare, a company now in liquidation, which has been accused of recklessly mismanaging pensioner money, accusations it has denied.
Liberty Sipp also has investors holding money in Ethical Forestry Ltd, which is being investigated by the Serious Fraud Office and, according to Companies House, is in liquidation.
Liberty Sipp denies any wrongdoing in both cases and said it has now reduced its exposure to bad apple investments to 4 per cent of its book.
Figures published recently by the provider suggested advisers continue to support the firm, with its rate of Sipp openings has doubled in the 12 months to April following a surge in recommendations from some 730 advisers.
But advisers FTAdviser spoke to appeared very concerned by what could be lurking within Sipp providers' client portfolios.
Darren Cooke, Chartered Financial Planner at Red Circle Financial Planning, said he would not touch firms with a tarnished back book as the risk of a backlash from claims was too great.
He said: “I do very little business with Sipp providers as I don't really see much point unless you are going to use it to hold commercial property.
“The Sipp provider I do use has no exposure to non-standard assets, never has never will. I would not use a Sipp provider that has in the past exposed itself to that risk.”
Al Rush, principal at Rutland-based Echelon Wealthcare, who is involved in helping steelworkers embroiled in the British Steel Pension Scheme debacle, including with concerns some have transferred their pensions into unsuitable Sipp arrangements, said: “The default setting has to be ‘why’, and not ‘why not’ [for Sipps].”