The Financial Services Compensation Scheme (“FSCS“) has issued guidance on compensation payments as a result of failed investments made via a Self-invested Personal Pension scheme (a “SIPP”). The guidance explains that there are often a number of different firms which may be liable for some or all of those losses, including:
- Customers’ Independent Financial Advisers (“IFAs”); and
- The operator/provider of customers’ SIPP schemes (“SIPP Operators”).
The losses which each firm will be responsible for will depend on the nature of the advice or service performed by the firm, and customers may have claims against both, or either, of the IFA and the SIPP Operator.
Under the current rules, the compensation FSCS may pay in respect of investment losses is currently £85,000 per protected claim, per firm. This means that customers who have suffered losses of more than £85,000 may be left with uncompensated losses. Customers may, however, be entitled to further compensation from FSCS against another firm (e.g. a SIPP Operator) if another protected claim exists.
Allocation of claims
Where a customer receives advice from a regulated IFA to transfer their pension into a SIPP and invest their pension savings in unsuitable investments, FSCS will assess the claim(s) in the order below in circumstances where the SIPP Operator has been declared in default:
- Claims made against a SIPP Operator where a solvent IFA is still trading
If a customer makes a claim for compensation to FSCS in relation to their SIPP Operator, but the IFA that advised the customer to transfer their pension into the SIPP remains trading and is likely to be able to meet claims against it, then FSCS will refer the customer to bring a claim against the IFA.
In some cases, customers may have received advice to transfer their pension into a SIPP, or investment advice, from an unregulated firm or an introducer who is not authorised by the FCA or whose customers are not protected by FSCS. In these circumstances, FSCS may be prepared to exercise its discretion to assess a claim for compensation in relation to the customers’ SIPP Operator without first referring them to bring a claim against the other party.
2. Claims made against SIPP Operator or IFA where both firms have been declared in default
If a customer makes a claim for compensation in relation to their SIPP Operator, or both their SIPP Operator and a regulated IFA, and their IFA has also been declared in default, FSCS will first consider and pay compensation in relation to the claim against the IFA.
3. Claims where the customer has suffered uncompensated losses
Due to the maximum compensation limits that FSCS may pay under COMP 10.2.3R, many customers are left with losses even after receiving compensation in relation to a claim against an IFA.
In those circumstances, FSCS may then consider and pay additional compensation to customers in respect of losses arising from due diligence failures by their SIPP Operator.
When calculating the compensation payable in respect of each claim, FSCS will first allocate losses to the claim against the customer’s IFA up to the FSCS compensation limit. This will include, as far as possible, losses flowing from the advice to transfer the customer’s pension into a SIPP and any associated investment losses.