When a SIPP Goes Wrong: What Business Owners and Directors Should Know About Pension Risk
Self-Invested Personal Pensions (SIPPs) appeal to business owners because you get a lot more say in where your retirement savings go. If you’ve spent years building up a company, that makes sense. You choose the investments that fit what you want, and you don’t have to leave every decision to a pension provider.
But more control means more responsibility as well. Some people moved their pensions into SIPPs and ended up with risky, unregulated investments they didn’t really understand. Others were talked into moving their money by introducers who promised good returns. Then the money got stuck in investments that had failed.
So it helps to know how these arrangements can go wrong, what the law decided, and how you can assess your own pension. That way you can protect the retirement income you worked so hard for.
How SIPPs Work And Where The Risk Came In
A SIPP is a personal pension where you decide how your retirement savings are invested. What you can hold depends on the provider and the scheme rules, but it can include shares, funds, bonds and some alternative investments.
It’s worth keeping two things apart, the pension itself and whatever is held inside it. The SIPP operator runs the pension. A financial adviser may be the person recommending the pension, or recommending what goes into it. An introducer is someone who puts you in touch with an adviser, a provider or an investment, and they sometimes get a referral fee for doing that.
The trouble began when some introducers persuaded people to move their existing pensions into SIPPs so the money could go into schemes the savers had often never heard of. Overseas property developments, forestry projects, storage units and unlisted bonds were among them.
Investments like that aren’t automatically fraudulent. They can be hard to value and hard to sell, though, and that’s the real problem. Say a property development runs into money trouble. Your pension statement could still show an estimated value, so it looks fine on paper, but nobody wants to buy the asset underneath it.
The FCA has warned about transfers into SIPPs with unregulated investments. Its guidance on international SIPP transfers also points out that you need to understand the charges and any penalties for leaving.
The Legal Turning Point
The Court of Appeal’s decision in Adams v Options UK Personal Pensions LLP in 2021 became a big deal for SIPP complaints.
Mr Adams moved his existing pension after being introduced to an investment in storage units. The introduction came from a firm that wasn’t authorised. His pension money was then invested in the storage units via a SIPP operated by Carey Pensions, the company then.
The Court of Appeal allowed Mr Adams's claim under section 27 of the Financial Services and Markets Act 2000, and held that the unauthorised firm's regulated activities, which formed part of the arrangement, affected the SIPP agreement. That meant the agreement couldn’t be enforced against Mr Adams, and he was entitled to consequential relief. A later judgment dealt with how to work that relief out.
For savers, a court case involving a SIPP provider showed that an operator can face consequences when an unauthorised firm’s activities led to a pension arrangement being set up. That said, the ruling depended on the particular facts and the particular law in that case. It didn’t mean a SIPP operator has to pay back every customer whose investment loses money.
So the useful thing to take from it is to look at what each person involved actually did. Don’t just assume the only one who could be responsible is whoever recommended the investment.
Signs Your Pension May Have Been Mis-sold
Just because an investment failed doesn’t mean your pension was mis-sold. Markets fall, and even a suitable investment can let you down. What counts is how the transfer was recommended, whether anyone explained the risks to you, and whether the firms involved did what they should have done.
Start therefore with how the arrangement began. Did someone get in touch with you out of the blue and offer to review your pension? Did they promise very high or guaranteed returns, or push you to transfer before you’d had time to think it over?
Then look at what you actually hold. If most of your savings went into one investment you’d never come across before, ask yourself whether you understood the risks and how you would ever sell it. A statement showing the same value as before doesn’t mean you could sell the asset for that amount today.
The advice you got matters too. Did someone properly authorised go through the charges, the losses you could face, and the other options with you? Or were you told the transfer was only a simple admin change, when it really put your savings into something much riskier?
If that sounds like what happened to you, you could have good reason to look into it. It counts for more if the paperwork doesn’t match what you remember being told.
What To Do Next
Gather together your statements and transfer forms, investment agreements and any recommendations you were given. Track down all the emails, letters, and promotional material from the introducer, especially anything that described particular expected returns or the risks of the investment.
Then write to the firm. Explain what went wrong and what you hope it will investigate, and retain a record of both your complaint and the response you receive.
If the firm rejects your complaint, or hasn’t replied after eight weeks, you may be able to go to the Financial Ombudsman Service. It can look at many complaints about regulated personal pension arrangements. If an authorised firm has failed and can’t pay a valid claim, the FSCS guidance on SIPP claims explains that whether you can get compensation may depend on the firm and on the service it gave you.
What claimants typically need to know is that the right route depends on the facts. The adviser, the SIPP operator and the investment business may each have had different jobs and different responsibilities. Compensation isn’t automatic. The FSCS also doesn’t just guarantee the value of every investment that fails.
Time limits matter, so don’t leave this too long. Generally, you have six years from the event you’re complaining about, or three years from when you knew you had grounds to complain, or reasonably should have known. Exceptions and other rules can apply. You may be able to raise a complaint to the Financial Ombudsman Service within six months from when a valid final response is received. If you’re not sure which route fits your situation, getting qualified advice could be the best thing to do.
Lessons For Directors Planning Retirement
Your pension deserves as much attention as your business finances get. Before accepting advice, ensure that the firm's details and permissions are on the Financial Conduct Authority's Financial Services Register, and the permissions listed apply to the activity being undertaken, rather than just relying on a good website and assurance from the person selling the investment.
Avoid pressure to commit, promises of guarantees, and unusual opportunities to unlock your pension cash. Also remember that tax-free cash comes under defined conditions. Similarly, unusual arrangements which do not normally apply can also have tax ramifications.
Review SIPPs which were set up many years ago as an investment which may be difficult to value and sell. Ask your provider to provide up-to-date details on what is held, charges payable, and any restrictions regarding a transfer or an exit. If there’s an asset you don’t understand, talk to a properly authorised professional who has no link to whoever is promoting it.
Conclusion
SIPPs can be useful for retirement planning, especially if you want more say over your investments. Flexibility isn’t protection, though. If something doesn’t add up, collect the paperwork and look at your options before the time limits become a problem. Taking a careful look now could help you make better decisions about savings you may rely on for years.
