Over 1 million investors have chosen to invest their pensions via a SIPP and the sums currently held in SIPPS runs into billions of pounds. Inevitably, with such enormous sums involved, the advice on investing in SIPPs and the performance of the SIPP providers themselves has become an increasingly important area which is being scrutinised by disgruntled investors.
If a SIPP is not performing, for whatever reason, claims can be brought in one of three ways:
a) The Financial Ombudsman Service (“FOS”)
b) The Pensions Ombudsman (“TPO”)
c) Court action.
The FOS and TPO are effectively arbitration schemes and are quite different from a court action. Recently a Group Litigation Order has been made relating to an action against a SIPP provider in respect of its services by a number of disgruntled investors.
By section226 of the Financial Services and Markets Act 2000 (“FSMA”), FOS has jurisdiction to deal with complaints made by individuals concerning the regulated activities of authorised persons.
A complaint is to be determined by reference to what is, in the opinion of FOS, fair and reasonable in all the circumstances of the case: section 228(2) FSMA.
Importantly, whilst FOS is obliged to take into account the relevant law, it is free to depart from it, although careful reasons will need to be given for any departure from the law.
The maximum sum which FOS can require the respondent to pay is £150,000 which is a major drawback: any higher award made is payable at the discretion of the respondent: section 229(5) FSMA. Finally, there is no statutory right of appeal from a decision of FOS: it can only be challenged by means of a judicial review.
From a practical perspective, the FOS scheme is often frustratingly slow. The FOS can, from time to time, be inundated with complaints such as those relating to the PPI scandal and more recently complaints relating to micro loan providers such as Wonga which has recently been placed into administration. With limited resources, this often results in the FOS providing a slow turnaround when dealing with a complaint relating to a SIPP provider.
TPO’s jurisdiction over SIPP providers arises from its ability to deal with disputes of fact and law between a person managing a personal pension scheme, which will include a SIPP provider, and a beneficiary of a scheme: section 146(1)(c) of the Pension Schemes Act 1993 .
TPO has a wide jurisdiction to grant relief: he may direct any person responsible for the management of the scheme to take, or refrain from taking, such steps as he may specify, and importantly there is no limit to the monetary award which can be made by TPO.
A determination of TPO is enforceable as a court decision between the parties, and is subject to an appeal to the High Court on a point of law. Accordingly, TPO is required to base his decisions on established legal principles, and may not depart from them even if he considers it just and reasonable to do so.
Some SIPP providers are careful to only offer “an execution only” service. In such instances, it may well be difficult for such action to be successful if the SIPP provider has merely followed the investor’s instructions and the investment purchased was within the terms of the SIPP providers rules.
However, as is often the case, if the SIPP provider has contracted out some fund management advisory services to a third party the position is less clear. Much will depend upon the precise wording of the advisory services agreement which is being offered by the third party. It is here that issues often arise.
For example, if it is akin to management of a discretionary portfolio of shares containing low, medium and high risk securities there is a framework with the manager must adhere to. If losses have been incurred by the SIPP because the manager has not adhered to the prescribed structure, there is potentially a claim to recover those losses.
That does not directly help the investor since that breach by the manager is an issue that the SIPP provider alone can take up. However, if the third party provider has been recommended by the SIPP provider to the investor then it opens the door to an action against both the third party provider as well as the SIPP provider.
Each redress option has its own merits and drawbacks. A complainant can choose between making a complaint to the FOS or making a complaint to the TPO. Whilst the FOS has a financial jurisdiction of £150,000 complaints relating to SIPP providers, particularly in the realms of unregulated collective investment schemes, have often been upheld by the FOS whilst similar types of complaints have been rejected by the TPO.
As the TPO appear less friendly towards a SIPP complainant investors may decide to bring claims in the High Court.
Whilst litigation is rarely cheap, there is often scope for investors to bring group actions which save costs. These larger claims often bring additional pressure to bear on the SIPP providers. The Court process offers a wide range of remedies against both the SIPP provider and the third party provider along with usual prospect of recovering costs from the other side in the event of success. Thus, other than for relatively low value claims, the Court route offers the most effective recourse for an investor whose SIPP has suffered losses in these circumstances.
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