As an increasing number full SIPP providers are facing a variety of struggles, if your SIPP is with a full SIPP provider, irrespective of your own investment holdings, it's well worth a detailed review.
Even Though You May Only Have Invested In Regulated Things Like Deposit Accounts And Stockmarket Assets, You Could Be Affected By What’s Happening In Other Parts Of Your SIPP Provider’s Business
A Number Of Full SIPP Providers Are Facing A Challenging Time
As you'll see below, a number of full SIPP providers are currently in trouble.
So when it comes to your SIPP, the biggest thing to remember is that with most SIPPs, it’s not your pension scheme. You are one member of a Master Trust. It could include thousands of other people.
There are a couple of problems with this.
Firstly, if some investments get into difficulty in other parts of the Master Trust, the fallout could affect your SIPP.
Secondly, incompetent administration or lack of proper systems and controls within the SIPP provider could affect everyone in the Master Trust.
Despite this, you shouldn’t be concerned your pension fund is at risk.
The fact that your money is held in a Trust means it’s separate from the banking arrangements of the SIPP provider. It's usually also held within a distinct sub-Trust to avoid your money being merged with funds of other SIPP holders.
If Things Get Really Bad, Your SIPP Provider Could Be Sold
Generally speaking, the regulator doesn’t want to see any SIPP provider fail. There are usually only losers if this happens.
It will often encourage a larger SIPP provider to take over the running of the business. All SIPP providers are required to hold money to cover the cost of such a circumstance.
However, managing a collection of ‘bad’ SIPPs that contain toxic investments can be administratively expensive. The new SIPP provider can cover this cost in a number of ways:
- By picking up the profitable ‘good’ SIPPs run by the former SIPP provider
- By encouraging SIPP holders to dispose of non-regulated investments wherever possible
- By limiting investment choice to regulated assets to prevent further problems
- By substantially increasing fees
Why You Should Check The Health Of Your Full SIPP Provider
It could be an expensive mistake to assume that if you’re happy with your current investments, and you’re not considering further contributions, there’s nothing to worry about. Here’s why.
History shows that when some SIPP providers have previously run into difficulty, a number of their SIPP clients moved to other SIPP providers. The knock-on effect reduces cashflow for the SIPP provider in difficulty, at a time when it was already struggling.
It can quickly become a downward spiral. To overcome the loss of income, SIPP providers often have no option but to increase the fees for SIPP holders who remain, to cover the financial shortfall.
Pretty much every SIPP fee agreement includes a clause that allows the SIPP provider to increase the fees, often without a limit.
It seems grossly unfair that those people who stick with their SIPP provider may be charged more, sometimes significantly more, as a reward for their loyalty!
You should check your fee agreement to see what you’ve signed up to.
Some Troubled SIPP Providers
‘SIPP world’ is no different to any other niche market. It has an association for SIPP providers where all the key players are members. There have been great successes. But life has not always been rosy.
Over the years, there have been many casualties. Here are a few of the unfortunate stand-out moments.
Some firms didn’t make it and went bust. The Financial Services Compensation Scheme has recently declared SIPP providers Stadia, Brooklands and Montpelier in default, expecting tens of millions to be paid out in claims.
European Pensions Management got into difficulty. It was taken over by Suffolk Life, which in turn was swallowed up by Curtis Banks.
When a SIPP provider's problems are significant, the regulator can remove some of its permissions. This has just occurred at Greyfriars where some investment options have been restricted and SIPP holders are unable to make further contributions. It's a situation that’s far from ideal.
Guinness Mahon has been ordered by an adjudicator at the Financial Ombudsman Service to compensate five clients with around £100,000 for investing in inappropriate investments. It's one of a number of cases being considered, with more to follow.
Carey Pensions is actively on the market. And the word on SIPP street is that it’s not the only firm looking for a buyer.
If the outcome of these cases goes against the SIPP providers, it’s possible these firms and others may go out of business as a result of the millions of pounds of investments that are now at risk of partial or total loss.
SIPP providers are required to carry professional indemnity insurance, but the levels of cover don’t appear to be anywhere near enough to cover the potential liabilities.
It's Definitely Not All Doom And Gloom
Whilst this all sounds incredibly negative, the SIPP market is largely in great shape.
Compared to the millions of SIPPs, and the billions under management, these concerns only extend to a relatively small part of the overall SIPP market.
That said, if you're one of the thousands of SIPP holders with a full SIPP, it warrants investigation.
What You Should Do If You Have A SIPP With A Full SIPP Provider
Quite frankly, in the current climate, ‘doing nothing’ is not an option!
Irrespective of whether or not you have non-regulated investments in your SIPP, you should find out what sort of exposure your SIPP provider has to investments that are not covered by consumer protection.
These are often high risk, illiquid assets where there is rarely a secondary market allowing an early exit. This includes investments in oil, hotel rooms, vineyards, diamonds, carbon credits, forestry, storage units, car park spaces and green energy. You’ll find a wider list as part of the Financial Conduct Authority’s ScamSmart campaign.
And if your SIPP provider is bought or it’s trying to find a buyer, here are five questions your adviser should think about asking. If you don't have an adviser, it's probably a good idea to ask your SIPP provider these questions yourself.
If You Want Help
If your SIPP provider research causes you concern and you’d like to know your options, feel free to get in touch using the form below. We can’t say we have a magic solution, but we might be able to point you in the right direction.
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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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