The Financial Services Compensation Scheme (FSCS) will likely soon be dealing with claims relating to the SIPP provider Lifetime SIPP, which is currently in administration. The Financial Ombudsman Service (FOS) currently has 40 cases with it in relation to Lifetime SIPP, however, these will be passed to the FSCS if Liberty SIPP is declared in default by the FSCS and unable to meet their debts, as the FSCS will only pay out in relation to companies that are out of business. However, with Lifetime SIPP in administration and currently facing 40 separate claims, with more to likely follow, this is likely just a matter of time.
Some estimates put the total value of the claims to ultimately hit the FSCS at around £35 million. Now money has been paid out by them yet, and there won’t be any payments until the firm is declared in default, and unable to meet its liabilities. This is worrying news for investors who have already seen Lifetime SIPP move a significant amount of their SIPPS to another provider in the preceding months, with Hartley pensions picking up around 40% of its SIPPS book. If claims do end up at the FSCS, the maximum claim amount is currently £50,000. If a customer’s investment was higher than this, then they stand to potentially lose money.
This, however, is not the only raft of claims the FSCS has been forced to open itself up to. Recently they have also had to face paying out for claims relating to advice firm Active Wealth, who provided a number of large number of customers with poor advice who were looking for guidance on how to deal with their British Steel pension. A lot of these customers were incorrectly advised to take a SIPP. Already, the FSCS has seen dozens of these cases.
If many more SIPP providers go the same way as Lifetime SIPP, this could see the FSCS being involved in a huge amount of cases. The money they pay out also doesn’t come out of thin air- advisors support it through levies paid. If more companies have to be declared in default, and more customers complain as potential SIPP mis-selling becomes more well known, the number of cases the FSCS deals with, and therefore the levies meted out to the advisors (who essentially end up paying out of their pockets for the mistakes of advisors, and SIPP providers, who don’t follow the rules like they do), could rise significantly.