Thousands of customers of two failed pension providers can now claim for losses after the Financial Services Compensation Scheme declared the firms in default.
GPC Sipp and Lifetime Sipp are the latest in a string of private pension operators to collapse, prompting a wave of compensation claims at the FSCS.
The FSCS, which provides a safety net for customers of failed investment businesses, said it was accepting claims against GPC Sipp, which was placed into administration on Tuesday. GPC was operating around 2,700 self-invested personal pensions (Sipps) at the time of its collapse.
On Friday, the FSCS declared the Lifetime Sipp company in default and said that claims already submitted against Lifetime would “shortly be passed to processing teams for assessment”. Lifetime had about 400 Sipp customers.
Under FSCS rules, customers of failed firms can claim for misleading investment advice, poor investment management or misrepresentation if they have lost money as a result and the firm that advised them had since failed. Compensation of up to £85,000 is available per eligible person, per firm.
The FSCS anticipates that claims submitted against GPC will relate to the Sipp operator’s due diligence obligations in allowing customers to make specific investments in their pensions.
Between 2009 and 2012, GPC accepted high-risk non-standard investments into its Sipps, with a high proportion of the investments it accepted placed into the failed Harlequin property investment schemes, according to a briefing from the Financial Conduct Authority.
“We’re aware that many GPC customers were advised by independent financial advisers to transfer existing pensions into a GPC Sipp,” said the FSCS.
“Following the pension transfer, customers had their pension funds placed in high risk, non-standard investments, many of which have become illiquid.”
The FSCS said it was investigating what level of due diligence was carried out by GPC before permitting its customers to make specific investments into their pensions.
In January last year Brooklands Trustees, Stadia Trustees and Montpelier Pension Administration Services Limited were declared in default.
Earlier this year, the outgoing chief executive of the FSCS, Mark Neale, said he wanted to see a ban on customers putting their life pension cash into risky and illiquid investments. Compensation payouts to badly advised customers soared to £580m after big reforms to pensions were introduced in 2015. In the four-year period before 2015, the FSCS paid out a total of £80m.
The FCA declined to comment on the latest Sipp developments.
In its 2019-20 business plan, the regulator said it remained “concerned about the risk to consumers from defined benefit pension transfer advice and advice on high-risk investments. These will continue to be a priority in our supervision work.”