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SIPP & SSAS Ombudsman complaints round-up – Summer edition

We highlight below some recent complaints which have come before the Ombudsmen

If you're a SIPP or SSAS provider or financial advisor, read more to find out how the Ombudsmen approach certain complaints and how best to apply those outcomes to your own business.

SIPP administrator found to have acted within its terms and conditions

Mr S complained that his pension administrator failed to administer his SIPP correctly and as a result he suffered financial loss.

Together with other investments, Mr S held shares in Company A which were de-listing and for a limited period, he could claim shares on a 1:1 basis in Company B. The administrator however, could not exercise the options. They argued that, as per its terms and conditions, it does not allow unquoted shares within the SIPP. Further, if it was to certificate the shares then this could be treated as an unauthorised payment by HMRC. They offered Mr S a goodwill gesture of £50 for the inconvenience.

Mr S’s complaint was not upheld on the basis that it was clearly stated the administrator does not accept unquoted shares. Further, it was the responsibility of Mr S to explore options available to him and not rely on his administrator who act on an execution only basis meaning it cannot act in an advisory capacity.

What does this mean for you?

  • SIPP providers will not be required to act in an advisory capacity for SIPPs taken out on an execution only basis.
  • Providers should ensure that they provide clear details in its terms an conditions and  / or other documentation including the Key Features the extent of the investments permitted as part of the SIPP.

Advisors must assess and follow a client’s attitude to risk

Mr M complained about advice provided by his financial  adviser recommending he transfer his deferred benefit pension into a SIPP.

Mr M was in his late-fifties with an outstanding mortgage and little by way of savings. His advisor recommended the transfer as his income needs in retirement would be mat by his state pension, he wanted access to his pension and to take his 25% tax free cash.

The risk questionnaire indicated that he had a medium attitude to risk yet when drafting the suitability report, the advisors recommended investments which were high risk. Mr M did read and sign the suitability report.

However, the recommendation was that 40% of the funds should be placed in high risk investments and may not have been in Mr M’s best interest. Additionally, there was no detailed record taken as to why he needed the tax free cash at that time.

Mr M’s complaint was upheld on the basis that the recommendation to transfer was not in his best interests. His award was to be calculated to put him into the position he would now be in had he not received the unsuitable advice.

What does this mean for you?

  • Advisors need to ensure that they are giving the required advice that is suitable and tailored to the specific client.
  • The advisor should have considered the suitability of the investment when compared to the risk appetite of the customer.

Providers must explain charges at the outset

Mr S complained about the fees his SIPP administrator was charging him.

In January 2014, the SIPP administrator set out the relevant service charges to Mr S which included an annual drawdown administration charge and an administration fee charged quarterly.

The administrator debited the 2014 annual drawdown administration fee on 6 January 2014. However, no further fee was taken until 15 March 2018 when four yearly payments were taken.

Mr S argued that if had he been charged correctly, he would have been alerted to the high costs and moved his pension several years earlier.

Mr S’s complaint was not upheld because the fees had been clearly explained to him and agreed at the outset. The Ombudsman was also not convinced that, had the charges been applied as agreed, Mr S would have moved his pension.

What does this mean for you?

  • Providers need to ensure that charges are properly laid out and explained when the SIPP is opened.
  • Providers need to explain the details and charges to their customers effectively to enable them to make an informed decision on the service being offered.

Advisors must ensure the schemes' fees do not impact suitability and overall return

Mr A complained about the advice received to switch his personal pension to a SIPP which led to financial loss.

Mr A had been unemployed for 13 years due to ill-health meaning there was no prospect he would resume his pension contributions. The SIPP investments needed to reflect his low risk nature.

The disclosure of costs to Mr A was misleading. The critical yield figure given by the advisor of 0.19% failed to account for both the 3.5% initial advisor charge and the 1% annual advisor charge meaning that the critical yield, in reality, was much higher. Mr A was for this reason held not to have been informed of the true costs which had increased in light of the switch.

Further, there was no evidence contained within the suitability report that the SIPP would provide a better investment performance. Given Mr A was a low risk investor, the SIPP would need to reflect this and as such, there would be limited scope for a better overall return especially in light of the higher costs of the SIPP and ongoing advice required.

Mr A’s complaint was upheld because there was insufficient evidence for recommending the switch including that the schemes’ increased fees negatively impacted the overall return. Compensation was calculated as the difference between what Mr A’s previous personal pension would have been worth if it had remained invested and the actual amount of Mr A’s SIPP at the calculation date. Further Mr A was to be paid £600 plus VAT to cover financial advice costs.

What does this mean for you?

  • Advisors need to ensure proper exploration of the options available to customers and assess the risk appetite together with any additional fees to ensure a better overall return.
  • Recommendations of products by advisors must reflect the risk profile of their customer and all charges need to be clear and not misleading.

SIPP operator required to compensate member

Mrs T complained that she has been mis-sold investments which had resulted in a drop to her pension value from £56,000 to £20,000.

Around £56,000 of Mrs T’s existing pension was transferred into a SIPP and the SIPP operator given instructions to invest £15,000 of it in two unregulated collective investment schemes (UCIS).

The location of the advisor in Ireland was held not to impact upon the Ombudsman’s decision ability because her complaint related to a regulated activity carried on from an establishment in the UK and the advisor was an incoming EEA  firm.

Mrs T’s did not appear to meet the criteria of a sophisticated investor or high net worth investor and should not have been advised to invest in the UCISs.

The Ombudsman held that both the SIPP Operator and the advisor should compensate the customer for half because the advisor should not have given the instructions to accept the particular investments and the SIPP operator should not have accepted them.

The compensation was to be paid to Mrs T’s pension. However, if that payment conflicted with any existing protection or allowance, it was to be paid to her directly and reduced to allow for any income tax that would otherwise need to been paid. Further, £150 is to be paid to Mrs T for the trouble and upset caused.

What does this mean for you?

  • The Ombudsman can look at complaints against incoming EEA firms where the regulated activity is being carried in the UK.
  • SIPP operators can be held to pay compensation together with together with financial advisors.

Pensions liberation:  insurer carried out due diligence in line with industry practice at the time

In February 2013, following a request from Mr R, Prudential transferred nearly £12,000 to the Beausale Scheme.  During the same month, the Pensions Regulator (tPR) issued new guidance on pensions liberation and the dangers of pension scams (the so-called 'scorpion guidance').

Mr R complained that Prudential did not carry out sufficient due diligence on the receiving scheme.  Prudential argued that the Beausale Scheme was registered with HMRC and that all the documents required at the time of the transfer were duly received.

The Ombudsman sympathised with Mr R, but rejected his complaint on the basis that Prudential carried out the level of due diligence expected at the time of the transfer, before industry practice changed.  Here (and in other similar determinations) the Ombudsman concluded that it was reasonable to allow a short period of time for providers to consider and implement the new tPR guidance.

The Ombudsman determined that there was no maladministration by Prudential. The receiving scheme was registered with HMRC and Prudential received the relevant forms and documents.  In the Ombudsman's view this was sufficient.  Mr R had a statutory right to transfer and the extent to which Prudential was able to stand in the way of this was limited where, as here, the receiving scheme met HMRC requirements.

What does this mean for you?

  • Ensure that the level of due diligence you carry out on transfer requests reflects any changes in industry practice.  The Ombudsman will allow a short period of time for you to consider and implement any changes in process required to reflect new industry guidance.
  • Your process should take account of developments in the industry since this determination, including the new version of the Code of Good Practice in Combating Pension Scams launched by the Pension Scams Industry Group in June 2019.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2019. Specific advice should be sought for specific cases. For more information see our terms and conditions.

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