Pension transfers to SIPPs at risk

MPs are urging the Financial Conduct Authority to step up its oversight of the transfer of funds from defined benefit pension schemes to self invested personal pension (SIPPs) to stop abuse of the system following pension freedoms

It wants to see harsher penalties for advisers who provide poor advice resulting in the loss of pension pots due to risky pension transfers.

The amount of money transferred out of defined benefit pension more than doubled last year to nearly £21bn, according to FCA figures.

There are widespread concerns that unscrupulous advisers are persuading people to move their protected funds from DB pensions into SIPPs plans which offer risky investment opportunities.

The Work and Pensions Committee is now focusing attention on abuse of the system and feedback on its latest inquiry into DB pensions closed on 18 May.

Frank Field, chair of the Committee has written to the FCA executive director of supervision Megan Butler, asking for further details about what action FCA is taking to clamp down on abuse of DB pensions.

In a bid to evaluate the extent of the use of SIPP transfers, Field has asked for information on the value of funds transferred from DB pension schemes into SIPPs in the last two years which are held in the form of non-standard or unregulated investments, as well as clarification on the level of due diligence SIPP providers are required to conduct on the investments that they provide access to, and the way the FCA monitors this.

It has also questioned whether the FCA needs more powers to ban unregulated or non-standard investments from even being considered as part of a SIPP.

Currently, the Financial Services Compensation Scheme (FSCS) expects SIPP-related compensation claims to continue rising, leading to an increase in compensation costs. The FSCS protection is limited to £50,000 per case which in many cases falls far short of the financial loss suffered.

In March, the government issued a white paper, Protecting defined benefit pension schemes (Cm 591) designed to strengthen the powers of The Pensions Regulator (TPR) to give it the power to issue punitive fines to punish ‘irresponsible activities’ that cause material detriment to a pension scheme.

The government says it will make it a criminal offence ‘to have committed wilful or grossly reckless behaviour in relation to a pension scheme’ – although the details of this offence are unclear. TPR will also be granted enhanced investigative and information-gathering powers. 

Letter from WPC chair Frank Field MP to Megan Butler, FCA, relating to SIPPs

Report by Sara White

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