Pensions savers pushed into high-risks

Unscrupulous firms are still putting people’s pension savings at risk by switching them into high-risk investment plans that could leave them nursing irretrievable losses, the regulator has revealed.

Property can be an unsuitable pension investment. Picture: Getty

The Financial Conduct Authority (FCA) has issued a fresh warning over firms that are advising savers to transfer their funds into “non-mainstream” investments within their self-invested personal pensions (Sipps).

An investigation by the FCA uncovered “serious and ongoing failings” in a number of firms using Sipp wrappers to switch customers from conventional pension arrangements into unregulated and illiquid (difficult to sell) investments with high potential for heavy losses.

The probe uncovered “very poor” standards of advice where firms failed to establish the customer’s needs and circumstances and demonstrated poor understanding of the investments they were selling.

The FCA said: “Customers have a right to expect an authorised firm to act in their best interests, yet the serious and ongoing failings found at firms have placed a substantial number of customers’ retirement savings at risk.

“We think advising on the suitability of a pension transfer or switch cannot be reasonably done without considering both the customer’s existing pension arrangement and the underlying investments intended to be held within the Sipp.”

Some of the firms singled out by the FCA were operating business models that treated all customers as ‘insistent’ or wanting ‘execution-only’ services, in order to get around advice and compliance rules.

The latest alert comes just months after it banned the sale of most unregulated collective investment schemes (Ucis) to ordinary investors amid fears of widespread mis-selling. The new rules restrict the promotion of Ucis to ‘high net worth’ and sophisticated investors for whom they’re more likely to be suitable.

One leading financial adviser in Scotland told The Scotsman of his growing alarm at the number of unsuitable investment sales being dressed up as retirement planning options.

“These scams are bordering on fraud and only serve one purpose – to line the pockets of unscrupulous so called advisers pocketing enormous up-front fees,” said Tom Munro, of Tom Munro Financial Solutions. “In many cases they pick up a double fee, one from the Sipp provider and another from the underlying investment group,”

The unregulated schemes being accessed through Sipps often invest in risky assets such as forestry and overseas property. Yet the cases seen by the regulator typically involved people with money in mainstream pension funds or final salary schemes but who had very little investment experience.

“The likes of overseas property developments and forestry are totally unsuitable for ordinary savers, who are persuaded into such schemes that their so-called adviser has little or no knowledge of whatsoever,” said Munro.

The latest revelations raise concerns that the removal of restrictions on access to pension pots next year could spark a fresh wave of mis-selling into unregulated schemes as firms find ways to circumvent the new rules.

Not only are unregulated schemes usually high-risk and illiquid, but in the event of things going wrong investors are also unlikely to have recourse to the Financial Ombudsman Service or the Financial Services Compensation Scheme.

That means any recommendation to invest in something with the word “unregulated” anywhere on the promotional literature should be avoided at all costs, said Munro.

“The clue is in the title and when things go wrong as they inevitably do, you are not compensated in any way for your losses.

“There are literally thousands of mainstream funds out there to populate personal pension arrangements, most of which are accessible without the need to incur additional Sipp trustee and administration fees.”

The FCA pledged to take action against firms putting ordinary investors at risk by recommending non-mainstream Sipp holdings, but it has stopped short of a ban in line with that on Ucis promotions.