The responsibilities of SIPP administrators and trustees for investments – where are we now?
The Pensions Ombudsman has published a decision rejecting a complaint made against a SIPP administrator in relation to the suitability of investments held within a SIPP.
We previously reported on the contradictory stances taken by the Financial Ombudsman and Pensions Ombudsman in relation to complaints against SIPP administrators and trustees when it came to the suitability of investments within SIPPs.
The Financial Ombudsman found against a SIPP administrator referring to the FCA's thematic reviews and the findings that SIPP providers, amongst other things, should routinely record and review the type and size of investments recommended by advisers. The Financial Ombudsman retracted that decision in September 2014 and the decision remains subject to a review. On similar facts the Pensions Ombudsman rejected a complaint by a separate complainant. The most recent Pensions Ombudsman's decision follows its earlier decision.
A complaint was brought by Robert Goodwin against Berkeley Burke SIPP Administration Limited (BB) (BB was also the subject of the earlier publicised complaints before both the Pensions Ombudsman and Financial Ombudsman). Mr Goodwin was advised by an investment adviser to set up a SIPP and invest £40,000 in Green Oil Plantations. There was some uncertainty over whether or not the investment adviser was regulated. Mr Goodwin thought they were but the application form sent to BB said the adviser was not regulated.
BB processed the application and assessed whether or not the investments were capable of being held in a SIPP under HMRC rules. BB warned that in accepting the investment it was not endorsing the investment, nor its suitability with respect to Mr Goodwin's financial objectives or risk profile; that responsibility rested with Mr Goodwin and his professional advisers. Mr Goodwin was also warned that the asset may be illiquid, the investment was not covered by the Financial Services Compensation Scheme and it was unregulated.
The SIPP was set up and the investment made in 2011. Green Oil Plantations entered administration in 2013. It is likely that Mr Goodwin has lost his entire investment as a result.
The Pensions Ombudsman approached the complaint by looking at whether BB carried out appropriate due diligence and whether it was maladministration to make the asset available within the SIPP. In deciding this question the Pensions Ombudsman considered BB's legal obligations to Mr Goodwin and whether BB acted consistently with good industry practice.
In particular, the Pensions Ombudsman considered a trustee's statutory duty of care under the Trustee Act 2000 noting that SIPPs are not exempt from that act (albeit that occupational pension schemes are) and that in this case the statutory duty of care did not apply as the selection of investments was not a matter for BB but for Mr Goodwin.
The Pensions Ombudsman then went on to consider the various publications from the FSA and then FCA as to SIPP investments from 2008 to 2012. In light of this, the Pensions Ombudsman decided to reject the complaint finding that "… I cannot apply current levels of knowledge and understanding, or present standards of practice, to a past situation."
The Pensions Ombudsman's consistent approach to complaints made against trustees and administrators of SIPPs is welcome. However, the undertone of the Pensions Ombudsman's findings appears to be that the obligations on SIPP administrators and trustees to consider the suitability of underlying investments is more onerous than it once was and had Mr Goodwin's investment been made later than 2011 (and potentially after the more recent October 2013 and 2014 FCA guidance) the end result may well have been different.
Although this appears to be the implication of the Pension Ombudsman's decision it does not deal with a SIPP administrator and/or trustees engagement terms which often provide that the SIPP administrator and/or trustees is not responsible for investment decisions. The position where a SIPP administrator and/or trustee falls below the requisite standards but seeks to rely on a clause limiting their duty of care for investment decisions has yet to be fully tested before either the Pensions Ombudsman or Financial Ombudsman.