From biofuel to forests in Brazil . . . the toxic deals that rip off pension savers
TENS of thousands of people have money tied up in toxic investments that threaten to decimate their pension savings. Those at risk are being warned to weed out the high- risk schemes that are either doomed to fail – or will bankroll fraudsters.
The risky investments have been made through self-invested personal pensions, better known as Sipps. These pension arrangements are more flexible than traditional workplace schemes and are held by more than a million investors. They allow investors – or their financial adviser – to choose what is held inside the Sipp.
Although some providers restrict the choice of underlying investments to shares and funds, others provide access to more obscure ventures that are not listed on any stock exchange. Nearly £6 billion has been put into so-called ‘nonstandard’ investments.
The result is that many savers have been exposed to a mix of poor advice, rotten investments and scams. Examples of money being squandered via Sipps i nclude investments in teak plantations in Brazil, biofuel plantations in Cambodia and storage containers which earn rental income.
Experts say that if savers have even the slightest inkling they might have been scammed, they should act now to review their investments, limit losses and protect their retirement savings.
Martin Tilley is director of technical services at Sipp provider Dentons Pension Management. He says: ‘There are investment scams where you will get nothing at all for your money or ones where you own an asset but have most likely grossly overpaid for it. If your Sipp provider has not given you an up-todate valuation for some time, that could be a reason to worry.’
The Financial Ombudsman Service, which settles disputes between financial companies and their customers, is fielding an increasing number of complaints about Sipps.
In the year ending March 2018, it took on 2,051 cases, but in the next six months it handled 1,754 new cases. This is equivalent to 86 per cent of an entire year’s intake in half the time. It is also siding with customers in 61 per cent of cases it resolves – up from 52 per cent a year ago.
Sipp providers argue that customers are responsible for how their money is invested and that their job is only to execute a customer’s wishes. But investors argue Sipp schemes should ensure they weed out shady investments.
Increasingly, both regulators and courts are being persuaded that investors are right. Sipp providers are bound by rules that state they should check who they do business with.
While they do not need to ensure an investment is right for an individual, they do need to check it is suitable for the scheme they offer.
This responsibility was highlighted in a key decision by the Ombudsman back in 2014. It found in favour of a complainant who argued his Sipp administrator – Berkeley Burke – had failed him by permitting a £30,000 investment into a biofuels venture that later turned out to be a scam.
Berkeley Burke challenged the legality of the Ombudsman’s decision in the High Court but recently lost its case. It has the right to appeal again.
How a cold-call can lead to disaster
ANYONE thinking of opening a Sipp to invest in the unusual should be extremely wary.
Martin Tilley says: ‘If an investment is unregulated, treat any marketing material as if it is a pack of lies – at least until you can verify otherwise through independent and thorough research.’
Scammers are becoming sophisticated. Tilley says the investments they peddle look ‘at first, second and third glance to have substance,’ adding: ‘ Only when you delve deeper and start asking questions do you find you are not getting the answers you want.’
A typical journey for a riches-to-rags victim starts with a cold-call from an ‘introducer’ who is paid handsomely for recommending a toxic investment.
Michelle Cracknell, chief executive of The Pensions Advisory Service, says: ‘Sipp scams often involve an introducer promoting an investment that is at best high risk, at worst fraudulent.
‘A common hook is an exciting “high-return” investment. Often now the hook may also be to access the high transfer value from a defined benefit or final salary workplace pension. Introducers are usually unregulated and getting recompense from them is difficult.’
Investors in regulated investment funds can get compensation if their investment goes bust through the Financial Services Compensation Scheme. The limit is £50,000 per person, per firm – rising to £85,000 from next April.
Cracknell says anyone investing via a Sipp should ask about the compensation they would receive if the investments went bust – and obtain all details about the costs involved, ed including if they transferred their money out. She adds: ‘Do not follow up on calls from introducers that have approached you.’
For free and impartial advice on pensions visit pensionsadvisoryservice.org.uk or call 0800 011 3797. Over- 50s looking to make sense of pension choices can make a free appointment with Pension Wise. Visit pensionwise.gov.uk or call 0800 138 3944. To find a regulated financial adviser use websites such as unbiased or Vouched For. To read more about pension scams, visit fca.org.uk/scamsmart.