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Ongoing Pension Wrapper Fees Cause Headaches for Scam Victims

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Bizarre rules mean victims of pension scams must pay hundreds of pounds each year to their SIPP company.

Piggy bank wrapped by chain on white.

What is a pension wrapper?

If you have a Self-Invested Personal Pension (SIPP), the SIPP itself is a tax-efficient pension wrapper, sitting around a portfolio of investments explicitly chosen for you. The annual wrapper fee is usually between 1% and 3% of the assets managed to cover things like investment advice, trading fees, commissions, etc. Some SIPP providers charge a set minimum fee of a few hundred pounds per year, so if your pension pot is very small or has been deemed worthless due to financial mis-selling and professional negligence, you still have to pay out.

What is pension mis-selling?

Mis-selling is where the risks of transferring to a Self-Invested Personal Pension (SIPP) were not fully investigated or explained by a financial adviser, and you lose money as a result. It may be that:

  • A financial adviser promised high returns on a very risky, but unregulated, investment, for example, overseas property development or storage pods.
  • The charges payable to an investment were very high, meaning the fund had to perform really well to cover both the fees and any returns.
  • You were inappropriately encouraged to transfer your investments from a solid dependable workplace company pension, also known as a defined benefit scheme, to a more high-risk investment.

Is it possible to get your money back, both the initial investment and the wrapper fees?

TLW Solicitors has helped many people make a claim for professional negligence in pension mis-selling cases. These claims can be brought through the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS).

The Financial Services Compensation Scheme (FSCS) is a Government-backed body set up to help victims of failed financial firms authorised by City watchdog, the Financial Conduct Authority (FCA). FSCS claims can be complex and there is a limit to the amount of money that can be awarded.

Even if a successful claim has been brought through the FSCS, it is not unusual for investors to still have to pay the SIPP wrapper fees, as they may continue to have a contractual obligation with the SIPP provider. The SIPP provider may agree to waive the fees but is under no obligation to do so. The rules state that a SIPP provider is not able to close a SIPP while an investment is still held within it, even if it is an illiquid one, namely one that has failed and is worthless.

The FCA published a new Consumer Duty document in July 2022, outlining “rules and guidance for a new Consumer Duty that will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first”. It may be that the SIPP wrapper rule will have to change in order to comply with these new guidelines.

SIPP providers, like the failed Rowanmoor, can sell on the pensions arm of their business, meaning that another firm takes on investors’ pensions – which may have dropped considerably in value, or been declared illiquid by the FSCS. It is important to note that declaring a fund illiquid effectively values it at nil – but only for the purposes of calculating any compensation due. The fund may still have a value and therefore wrapper fees can still be charged!

Even after a successful FSCS claim is paid out, an investor continues to legally own their pension asset and can be charged the wrapper fee. Trying to sell the practically worthless pension – even if a buyer could be found – might even incur fees from His Majesty’s Revenue and Customs (HMRC).

The Financial Ombudsman Service (FOS) is an independent body set up to arbitrate between financial businesses and their customers. This would be the route to making a claim if your financial adviser or SIPP provider is still trading but disputes your complaint against them.

While FOS is unable to force a SIPP provider to close an individual’s pension account, it can take into consideration ongoing fees when making a compensation award, including the wrapper fee. FOS is also able to ask the SIPP operator to take ownership of the investment, so that a SIPP account can be closed, thus preventing further fees from being incurred in the long term. They can ask for the fees to be waived during the intervening period before a SIPP is closed, too.

Sarah Spruce, head of Professional Negligence at TLW Solicitors says of this unwelcome situation:

“When taking claims to the Financial Ombudsman Service, we have successfully argued that SIPP customers, who have already lost a considerable chunk, if not all, of their pension pot, should also be compensated for SIPP fees for 5 years, if the SIPP cannot be closed.  When clients are feeling at their most vulnerable, the rules around ongoing charges seem very unfair and certainly don’t offer value for money.”

If you have transferred a workplace pension into a SIPP and not seen the returns you were promised, or you have invested in high-risk, unregulated funds that have since gone out of business, please get in touch for a no-obligation review.

Our experienced team may be able to help you recover your losses and stop any ongoing SIPP wrapper charges. Even if your financial adviser or the firms you invested in are no longer trading, get in touch.

Please call us on 0800 169 5925, email info@tlwsolicitors.co.uk or use one of the contact forms below.

It is important to get advice as soon as possible as strict time limits can apply.

Meet Our Team

Meet Sarah, who heads up our experienced Pension and Investment Claims team.

Sarah and her colleagues are on hand to help with your claim.

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