There have been quite a few examples in recent times of SIPP (Self Invested Personal Pension) providers going bust which may lead you to ask, is my SIPP safe?
Hartley Pensions Limited, Rowanmoor Personal Pensions Limited and Corporate and Professional Pensions Limited are just the latest in a series of SIPP providers who have entered administration.
When this happens it can be a worrying time for investors not knowing how much of the retirement savings they will be able to get back.
So let’s look at some of the SIPP problems to look out for and what you should do if you are looking to use a SIPP.
Some underlying investments do not make your SIPP safe
A SIPP is a form of a personal pension available to any investor who wants to save for their retirement.
It is similar to a typical modern day workplace pension but with a few key differences:
- A SIPP will usually have a wider range of investment options available rather than be limited to a few selected funds.
- A SIPP will usually allow different ways of taking income from the pension when you come to retire.
SIPPs have become very popular in recent times due to the flexibility they offer around income withdrawals in line with Pension Freedoms.
A SIPP itself is not unsafe as long as the provider is registered with the regulator, the FCA (Financial Conduct Authority).
What can make a SIPP unsafe is the underlying investments you choose.
Be wary of ‘get rich quick schemes’ and non-mainstream type investments including:
- Offshore property.
- Some commercial property.
- Cryptocurrency.
- Small, listed stocks.
- Unlisted stocks.
A lack of diversification can mean that if the underlying investment fails, your retirement funds could be gone with it.
What to do to make your SIPP safe
If you invest in mainstream listed investment funds from well-known providers that are registered with the FCA then if your SIPP goes bust your money should be OK.
This is because your money does not sit with the SIPP provider but in custodian accounts of the underlying fund managers.
A lot of time SIPP providers will go bust because they haven’t done enough due diligence on the underlying investments offered. They then can’t cope with the volume of complaints and compensation that follows.
Should your SIPP provider have acted inappropriately and then fails, there may be some form of compensation offered by the FSCS (Financial Services Compensation Scheme) but only up to £85,000.
If you have been advised by a regulated Financial Adviser then you may also be due compensation from them.
In order to keep your SIPP safe you should do the following:
- Check the SIPP provider is regulated by the FCA by checking the FCA register.
- A larger more mainstream SIPP provider may be safer as it usually has the backing of a big insurance provider therefore giving it more chance of surviving any big complaints.
- Check the ratings and service reviews of the SIPP provider. Bad service is likely to lead to more complaints.
- Check the underlying investments you are choosing are also regulated by the FCA.
- Diversify your underlying holdings, using mainstream investments funds if you are not comfortable picking your own individual stocks.
- Use a regulated Financial Adviser to give you an extra layer of protection. Not only should they do all the due diligence for you, but you can also complain to them if your SIPP provider fails.
The key thing to remember with any type of investing and in particular for your retirement savings is that keeping things simple is usually better.
Don’t try to over complicate things with weird and wacky investment ideas.
Do what’s always worked.
For a lot of people that will be investing in global equity funds. Investing in the great companies of the world.
If something sounds too good to be true……. It probably is!
If you are considering retiring and are not sure on what to do with your pensions then please get in touch for a free no obligation 15-minute call. We would be happy to review your position, explain where you stand and what you need to do to get the retirement you desire. We’ve created hundreds of happy retirements, this could be you too!
Risk warning:
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.
