The self-invested personal pension was created to allow sophisticated investors to enjoy the tax advantages of a pension wrapper to boost retirement savings which would otherwise would have been subject to standard HMRC charges on investments. Not only was investment growth largely tax-free, but when cash or investments enter the SIPP, they trigger tax-relief for the SIPP holder.
In exchange, the SIPP holder accepts that on the bulk (75%) of the proceeds of the investment, withdrawals will be treated as income. This bargain with the tax-payer is what a SIPP is about. HMRC authorises SIPPs and the FCA regulates them. Their administration (in terms of investment transactions and record keeping) are scrutinised by auditors and the regulator. They have been hugely attractive to affluent Britain.
Over time, SIPPs have diverged from the original intent. Some SIPPs look pretty much like personal pensions and offer little by way of self-investment. Pension Bee is an example. SIPP has become a coverall term for the “non-workplace pension”.
At the other extreme, some SIPPs have tried to push the envelope on what can be considered “admissible assets”. The battle SIPPs fought (and lost) was over residential property. SIPPs cannot hold portfolios of buy-to -let. But the idea that there were assets that might sit within a SIPP outside the direct jurisdiction of the HMRC became attractive to some self-investors , for whom “offshore” meant “tax-free” in every sense.
While the wealthiest offshore investors were able to shield much of their wealth from the taxman, wannabe offshore moguls took shortcuts and this is where the scammers had a field day. The idea that investments (or even the SIPP) were outside the purlieu of HMRC has a lure to some investors which scammers were quick to exploit. Many investors want to invest offshore, so the investment companies moved abroad – and so did the advisers.
In order to maximise the value to providers, investment managers and advisers, complex structures were created, many of which were sold to unwitting holders of large CETVs. The diagram below was used by the FCA to explain why some BSPS steelworkers were paying in excess of 3%pa in fees for a “self invested SIPP”, the Times has branded this kind of structure “fractional scamming” as savers suffer death from a thousand cuts
Where did this lead?
In an article explaining why so many SIPPs are now going into administration, Paul Higgins , who makes his money taking up to 30% of compensation to those claiming against their SIPPs has this to say
Over the recent past, we have seen a number of semi-large secondary Sipp providers like Berkeley Burke, Guinness Mahon, Liberty Sipp, Corporate & Professional, and Brooklands enter into administration. All of the above companies were vying for a share of what can only be considered a modest percentage of the overall pension industry in the form of Sipps.
In their haste to get ahead and corner the market, all of the above Sipp companies agreed to accept business from anybody, even non-regulated advisers or offshore advisers without UK authorisation, and accept almost any kind of investment company within the Sipp wrapper.
The SIPPs remained in the UK, and that was their undoing. They were outwitted by scammers who used their FCA regulated status to legitimise fraud.
This is the background to John Moret’s article, published on this blog this morning. John argues that the SIPP industry was left to fail , by a regulator who thought that “self-invested” meant “sophisticated” and that if they fell prey to scammers, they had no-one but themselves to blame. I have seen this attitude at first hand in the Royal Courts of Justice and heard it from HMRC and FCA. I hope that John is right when he concludes
Perhaps the introduction of the new Consumer Duty requirements will encourage a new level of engagement. The uncertainties around due diligence requirements, particularly on “execution-only” business, may well become more significant as the investigations into the Woodford affair progress.
As so often, the basis of the scam, was that it was conducted under the auspices of an FCA regulated company. And the scammers knew that by the time everyone worked out what had happened, their get away car would be over the hill and out of reach.
Bovvered?
The bargain between HMRC and investors when SIPPs first came to be (over 15 years ago) was based on assumptions of probity and competence. John Moret (Mr SIPP) has continued to provide that probity and competence but many of the early SIPP providers were run either by incompetents or those with little or no interest in outcomes.
The FCA may not have been bothered that Hartley, Berkeley Burke, Guinness Mahon, Liberty Sipp, Corporate & Professional, Carey and Brooklands loaded themselves up with toxic assets , advised on by the kind of people exposed by last week’s Panorama program.
But in turning a blind eye to UCIS (the toxic fund wrapper which was used to disguise fraud with pseudo legitimacy), the FCA inadvertently gave the nod to those who were marketing Dolphin, London & Capital, Capita Oak, Connaught and Blackmore.
