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SIPP & SSAS Ombudsman complaints round-up – spring edition

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

If you’re a SIPP provider or financial advisor, read our insights into how the Ombudsmen approach certain complaints and how best to apply those outcomes to your own business.

SIPP providers must take steps to avoid wrongful tax deductions

Facts and decision

Mr D complained that his SIPP Provider (the Provider) failed to do enough to prevent tax being deducted from dividends paid on his investments held within a SIPP.

Mr D complained to his Provider in September 2017, stating that dividends took a long time to reach his account and that tax had been deducted on these dividends, even though the investments were held in a pension.

The Provider initially argued that the delays were due to the change in its platform and that tax had been deducted in error. However tax continued to be deducted.The Provider stated that it could take up to three months for HMRC to process claims to recover tax. By April 2018 the tax had still not been recovered.

The FOS upheld Mr D’s complaint on the basis that the Provider was obliged to help him recover the tax deductions in a timely manner as the deductions would not have been made if the Provider had told the investment vehicle that the investments were held within a SIPP.

What does this mean for you?

  • Where possible, providers should communicate with investment vehicles to avoid tax deductions being made incorrectly.
  • Where tax is wrongly deducted, providers should seek to ensure that they take all reasonable steps to recover the tax paid in a timely manner and minimise inconvenience to clients.

SIPP providers are not responsible for assessing the suitability of clients' investments

Facts and decision

Mr V complained that his SIPP Provider (the Provider) failed to carry out its duties correctly by failing to explain that the investments he was investing in were high risk, unregulated collective investment schemes (UCIS) and unsuitable for unsophisticated investors.

In 2008 - 2009, on the advice of his Independent Financial Adviser (IFA), Mr V made investments in a number of Funds which performed poorly and were suspended. The FOS acknowledged that although providers are not responsible for the suitability of the investments, they do have obligations in respect of the investments they allow to be held within SIPPs. They are expected to check that IFAs have the correct permissions for the advice being given and that there are no concerns about the quality of the advice. The FOS held that the Provider had met these obligations. However, Mr V argued he was never told the investments were UCIS and had never signed any documents confirming he was a sophisticated investor.

The FOS refused to uphold Mr V’s complaint and argued that the Provider had conducted appropriate due diligence on the investments. The FOS stated that Mr V’s application form stated that he was a sophisticated investor and the SIPP Operator was entitled to rely on the IFA’s declaration that Mr V understood the risk of the investments.

What does this mean for you?

  • Providers are not responsible for assessing the suitability of investments but have a duty to check there are no concerns in relation to the advice being provided by adviser firms.
  • Where adviser firms have classed a client as a sophisticated investor, SIPP providers are entitled to rely on such a classification.

Authorised Investment Managers are entitled to make investments at their discretion on behalf of individuals

Facts and decision

Mr F complained that, without his agreement, his Investment Manager purchased shares in an Alternative Investment Market (AIM) listed company within his SIPP plan. The company went into liquidation and Mr F complained that his Investment Manager should compensate him for this loss.

In January 2015, Mr F signed a form authorising his Investment Manager to manage his SIPP on a discretionary basis. Mr F was presented with the option to choose a risk category between A and D (D being the most risky), Mr F chose C. The form gave Mr F the option to restrict the types of investment or markets his SIPP could be invested in. However, Mr F chose not to impose any restrictions.

The FOS refused to uphold Mr F’s complaint on the basis that Mr F specifically instructed his Investment Manager to manage the funds on a discretionary basis, which meant that it didn’t need to seek his authority prior to purchasing the stock. Furthermore, Mr F failed to impose any restriction on the types of investment or the market in which investments could be made. The FOS pointed out that the investment was not inconsistent with Mr F’s investment objectives and approach to risk.

What does this mean for you?

  • Where an individual has authorised an Investment Manager to make discretionary investments within a SIPP Plan, investment may go up or down and individuals should be aware of this.
  • Where Investment Managers have been given authority to make investments at their discretion, they are entitled to make such investments as they deem fit, provided that the investments are not inconsistent with the client’s investment objectives and attitude to risk.

SIPP providers must ensure their terms and conditions are clear and transparent to clients

Facts and decision

Mr R complained that his Pension Provider (the Provider) did not transfer his pension into his chosen fund and sold some of his investments to meet the cash requirements under his policy.

Mr R was a member of the group personal pension (GPP) provided by his employer. In 2017, his employer informed him that it intended to move his pension to a SIPP, with the same provider. All future contributions would be in the new SIPP.

Mr R had the option of leaving his existing pension fund in the GPP, or transferring it to the SIPP. Mr R decided to transfer his pension, and completed the relevant documents. He indicated that he wanted the transfer to take place on an “in specie” basis. That is, he should remain in the funds in which he was invested in the GPP. Mr R then complained to his Provider that it had failed to invest part of his pension in the fund he’d specified in his transfer request. Also, the Provider had sold some of his investments to meet the cash facility under the SIPP. He thought the Provider should have taken this from the regular contributions he was making.

The FOS refused to uphold Mr R’s complaint as the Provider had carried out the transfer in line with the instruction for this to be in specie. The fund Mr R’s pension had been applied to was equivalent to the fund he’d used in the GPP. The FOS held that the Provider had acted incorrectly in the way it had dealt with the cash facility. As this had fallen below 0.25% of the value of the SIPP, it had sold part of the investment to make up the shortfall. The terms and conditions allowed the Provider to do this.

What does this mean for you?

  • As long as the terms and conditions of a SIPP are clear and transparent, a customer cannot legitimately make a claim against a Provider for complying with the terms and conditions of a SIPP, regardless of whether or not the terms and conditions of the SIPP are deemed favourable by the client.  

An adviser must clearly explain the risks associated with investments to clients

Facts and decision

Mr P complained about advice he received from his financial adviser (IFA) to transfer his personal pensions plan into a SIPP. An investment was to be made into store pods. Mr P complained that he was not a high net worth client and should not have been advised to invest in high risk or speculative funds as he did not want to take high risks with his pensions.

According to the IFA’s notes, Mr P was not an adventurous investor but was unhappy with the poor performance of his existing personal pension plans. The IFA recommended that a proportion of Mr P’s pension be invested via an online Wrap Platform (which allows an investment portfolio to be consolidated and managed) to be held within the SIPP. Having accepted this advice, the funds were transferred and invested.

The FOS held that a regulated activity took place when advice was given to transfer a personal pension to a SIPP. The SIPP was intended to hold store pods and other high risk investments. The FOS held that the advice had to be suitable for Mr P. In order for it to be suitable for Mr P, the IFA was required to undertake a suitability and appropriateness assessment to determine the type of investments that were suitable for Mr P, based on an assessment of his financial circumstances and his attitude to risk.

The FOS upheld Mr P’s complaint as the store pods were a high risk investment and Mr P had his IFA that the personal pensions were a significant portion of his wealth and that he didn’t want to take unnecessary risks.

What does this mean for you?

  • IFAs must conduct an assessment to establish whether a particular investment is suitable and appropriate for a client.
  • An adviser must clearly explain the risks associated with an investment to the client and must provide objective advice on whether an investment is suitable for that particular client, based on their individual circumstances.

Transfers out: SSAS trustees must act in accordance with trust law duties

Facts and decision

Mr E brought a complaint to the Pensions Ombudsman against a SSAS provider in relation to the sale of a commercial property owned by the SSAS.  Mr E said that he was forced to agree to the sale against his wishes and in breach of his rights as a beneficiary, because the sale was not in his interests.

The other member trustee had requested a transfer out of the SSAS.  There was insufficient liquidity in the SSAS to fund the transfer.  Mr E and the other member trustee were each beneficially entitled to half of the property held by the SSAS.  The SSAS provider explained to Mr E that, in order to give effect to the transfer, he had to either fund the purchase of the other member trustee's share of the property or agree to a sale of the property to a third party. 

The relationship between Mr E and the other member trustee had broken down.  Mr E wished to retain the property in the SSAS but did not have sufficient funds to purchase the other half.  Mr E's delays in agreeing to a sale of the property meant that a first proposed sale did not proceed because the buyer withdrew its offer.  Two months later, a new offer was made which was the same as the previous offer, albeit with no estate agent fees so the net proceeds to the SSAS would be higher.  The SSAS provider wrote to Mr E to remind him that if agreement could not be reached on the sale, the other member trustee would not be able to transfer out and he might submit a complaint to the Pensions Ombudsman or to The Pensions Regulator.  Mr E then agreed that the property could be sold.

Mr E's complaint was not upheld.  The ombudsman held that the SSAS provider had not acted inappropriately when communicating with Mr E in relation to the sale of the property or forced him to sell it.  It had communicated merely the reality of the situation; it did not force him to agree to the sale.  Mr E, as a trustee, had a duty to act in the best financial interests of all the members.  This duty meant that he could not reasonably refuse the sale and stop the transfer (it was not a statutory transfer request), even though he personally preferred to retain the property, because he would have been disregarding the other member trustee's preferences and it was a conflict of interest he was required to set aside.

Two other complaints were rejected on the basis that they were outside the Pensions Ombudsman's jurisdiction because the three year time limit for bringing complaints had expired.

What does this mean for you?

  • When considering a non-statutory transfer out request, trustees must act in accordance with their trust law duties.
  • If there is a breakdown in the relationship between member trustees, a SSAS provider should carefully consider its communications with the member trustees.It is appropriate to remind them of their trust law duties and potential conflicts of interest.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2019. Specific advice should be sought for specific cases. For more information see our terms and conditions.

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