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Pension Ombudsman, SIPPs and the uncertainty

21 April 2016. Published by Rachael Healey, Partner

SIPP trustees and administrators don't have to consider suitability, the Pension Ombudsman has found in a recent complaint.

This is consistent with the stance previously taken by the Pensions Ombudsman but continues to stand in contrast to FOS' decision in a complaint against Berkeley Burke which remains "under review" 18 months on.

Recent Pensions Ombudsman Decision

In the most recent Pensions Ombudsman decision a complaint was made by Mr Richardson in relation to investments made in late 2012. 

Mr Richardson said that he received an unsolicited telephone call from a company called In4orm offering to review his existing pension arrangements.  In4orm suggested that Mr Richardson consider transferring his existing pensions into a single arrangement investing primarily in Green Oil Plantation Australia, a UCIS (GOP).  In4orm wrote to Mr Richardson confirming that he had declined the advice and instead wanted to proceed on an insistent basis with regard to his pension transfer.  Further, that Mr Richardson understood that it was his choice as to where to invest and that he had chosen to invest £30,000 in GOP.

Mr Richardson transferred two existing pension arrangements to a SIPP for the purposes of investing in GOP.  The trustee and administrator of the SIPP considered the investment to ensure it was suitable for their SIPP wrapper.  When the investment was made Mr Richardson confirmed that he had carefully considered the information provided by GOP, that no investment advice had been provided by the administrator/trustee and the administrator/trustee was acting on an execution only basis.

In 2013 GOP went into administration and Mr Richardson lost his entire investment.  He complained to the Pensions Ombudsman arguing that he was not contacted to verify his requirements or to check that he understood the arrangement he was entering into.

The Pensions Ombudsman said that it was questionable whether or not a SIPP was the right vehicle for Mr Richardson's pension and GOP the right investment, but he had fundamentally misunderstood the role of the administrator/trustee. 

In considering the complaint the Pension Ombudsman asked whether or not the administrator/trustee carried out appropriate due diligence and whether it was maladministration for GOP to be available as an investment within the SIPP.  The Pensions Ombudsman considered the investment provisions in the Trustee Act 2000 and that this statutory duty did not apply to the administrator/trustee as the selection of investments was not a matter for the administrator; if such a duty was imposed this would be entirely inconsistent with the purpose of a SIPP.  The Pensions Ombudsman then turned to whether or not a wider due diligence obligation had been imposed by the FCA on SIPP trustees/administrators.  As the investment had been made before the recent FCA guidance in 2013 and 2014, this did not apply and so there was no need to consider whether there was a wider due diligence obligation. 

The complaint was rejected.  The Pensions Ombudsman went on to say "… Mr Richardson has to take some responsibility for the management of his own affairs.  He has to accept responsibility for the statements he agreed to in the forms that he signed and the undertakings and agreements that he made… If he was unsure about the agreements he was entering into he should have asked questions at the time and not signed until he was fully satisfied he fully understood the risks…".

Where are we now?

The Pensions Ombudsman has taken a consistent approach to the duties of SIPP administrators and trustees; where they have excluded a duty to review the suitability of investments the Pensions Ombudsman cannot and has not stepped in to impose such a duty. 

However, this recent Pensions Ombudsman decision does leave open the possibility that the FCA guidance from 2013 and 2014 may impose a wider due diligence obligation on SIPP trustees and administrators which may in turn require them to consider in further detail investments in particular products such as UCIS.  It will be interesting to see what approach the Pensions Ombudsman takes when faced with a complaint arising from investments in UCIS products post 2013, whether or not a wider due diligence obligation is imposed and what this duty requires.

In the meantime, the FOS' view on similar complaints against SIPP operators and administrator remains unclear.  Until we have the FOS' review of the Berkeley Burke decision we won't know with any certainty whether or not SIPP administrators and trustees face a liability lottery dependent on the jurisdiction they end up in.  Only one thing is certain, the uncertainty in this area continues.