How it’s possible to claim compensation for miss sold self-invested personal pensions (SIPPs)
Your SIPP is protected, though the extent of this protection depends upon the investments your SIPP holds. In this article, you’ll find out about the kind of regulatory protection that you’re entitled to, and how this can vary.
Is my SIPP protected?
As we said earlier, how much protection your SIPP has depends on what, exactly, you hold within it.
The Financial Services Compensation Scheme (FSCS) was designed to help you when an authorized firm fails. Having FSCS protection means that…
- It’s automatically paid out to you when an authorized firm fails.
- It’s free and funded by a levy on the industry.
- It’s only paid out if the FSCS’ investigation determines that a company is unable to pay out on its own.
- It’s designed to compensate individuals. This means that if your investments are held in a company, or pooled with others, your compensation could be affected.
- It’s normally tax-free, though you could incur tax if you were looking to receive interest on the defaulting company.
- How much coverage you get depends upon the type of SIPP provider, and the investments held within the SIPP.
However, the FSCS can’t protect you from the price fluctuations which are common amongst SIPPs that are exposed to market movements.
As an example, if the firm that holds your SIPP goes bust due to a series of poor investments, you’re likely to be covered by the FSCS. However, if some of the funds in your SIPP underperform (…but the firm doesn’t go bust) you won’t have a case.
Protecting your assets from the fluctuations of the market is largely a matter of smart asset allocation and, if we’re honest, some luck.
Whilst teaching you to be luckier is, sadly, not something we can offer, the expert pension advisors that we work with can help you to find a plan with the right asset allocation for your mis-sold SIPP compensation claims and will conduct regular (usually annual) reviews with you to keep you appraised of performance and if necessary advise on taking action if things are not going well. Get in touch and we’ll connect you with the advisor with the right expertise for you.
What pension protection do I need?
You don’t really need any insurance against your provider failing, seeing as this is provided for free by the FSCS.
The type of investment
When you invest in a SIPP, there’s a risk of your SIPP provider failing, along with a separate risk of the investments within your SIPP failing.
The investments within a SIPP are legal ‘ring-fenced’ from the SIPP provider itself. That means that, even if the provider fails, the investments are safe – and also entitled to their own, separate FSCS protection. The extent of this protection depends on the type of product.
Of course, the firms that your SIPP invests in could theoretically fail, even if your SIPP provider remained solvent. Not to worry though, it’s likely that the FSCS will cover them too.
Provided your SIPP is a contract of long-term insurance (and the vast majority are), you’d be covered up to 100% of the value of your investments – with no upper limit on compensation.
If you really want to be sure, you could ask your provider to confirm, in writing, that the SIPP is a long-term insurance contract, and covered by the FSCS.
An insurance product held within a SIPP
Long-term insurance products are protected up to 100%, with no upper limit.
A ‘direct’ or unregulated investment
Direct/unregulated investments on their own are not directly protected by the FSCS. So, for example, if you invested directly in a company through your SIPP that failed, you wouldn’t be covered.
If you’re one of the few people who still hold enhanced protection status on your pension, you’ll want to be careful before doing anything with a SIPP, as you could lose your enhanced protection.
As a rule of thumb, any further contributions made after April 2006 could cause you to lose your status, and you can’t reapply, once you’ve lost it. If you’re worried or have any questions about this, get in touch and one of our experts will be able to put your mind at rest.