It is a bizarre quirk of the system that self-invested personal pension investors who have lost their pension in a worthless, illiquid investment cannot free themselves of the shackles of ongoing costs associated with their wrapper.
The rules dictate that even after an investor has brought a successful claim through the Financial Services Compensation Scheme, a process that by definition serves to validate their position, they still have to pay several hundred pounds in Sipp fees every year as their contractual relationship continues, whether they like it or not.
This is unless the Sipp provider agrees to set them free by waiving their fees, which, needless to say, is not the preferred option of many providers. This is all assuming there are no other assets in the Sipp warranting the fees.
The issue stems from the fact that it is not possible for a Sipp operator to close a Sipp while an investment is still held within it, and it is sometimes not possible to transfer an underlying illiquid investment due to HM Revenue & Customs rules.
Looking at this from the consumer’s perspective, how is this in the spirit of the consumer duty — a duty that sets “higher and clearer standards of consumer protection across financial services, and requires firms to put their customers’ needs first”, the Financial Conduct Authority’s words, not mine?
A sale for a nominal amount could be considered value shifting by HMRC
I often get contacted by investors in such a dilemma. After realising they have lost £150,000-plus to a failed investment, perhaps mis-sold by a rogue adviser whom they trusted, and getting back £85,000 from the FSCS, they still find themselves a customer of the Rowanmoors of this world.
With Rowanmoor specifically, this situation is made more bizarre by the fact that the Sipp company itself has failed. But the pension plans have been sold on, rescued, so to say, by yet another willing provider willing to keep them on as customers and let the fees continue — worthless pension plans or not.
For many, the problem is that their investment is de facto unsellable, after all it has been declared worthless by the FSCS due to it being illiquid.
But this does not mean that the asset is actually worthless. The FSCS is saying that the value is so uncertain that in order to provide fair compensation it will value the asset at nil.
Not off the hook
Adding to people’s confusion is that the investor’s interest in the underlying investment transfers to the FSCS after a claim. This is so that the lifeboat scheme can attempt to recover its costs — it makes sense.
But investors often take this to mean they are no longer the owner of the Sipp and are off the hook, which of course is not the case. The FSCS does not take over legal or beneficial ownership of the asset, that very much stays with the trustee.
The flip side is that the consumer may be able to sell or transfer the asset. However, which hapless buyer would they sell it to and at what price? A sale for a nominal amount could be considered value shifting by HMRC and can create an unauthorised payment charge, which in turn leads to a scheme sanction fee.
