The UK’s Financial Conduct Authority (FCA) revealed that just a quarter of people going into self-invested personal pensions schemes (Sipps) take regulated advice.
The figure was revealed by Christopher Woolard, executive director of strategy and competition at the FCA, during a select committee meeting held by the Department for Work and Pensions (DWP) over pension costs and transparency.
MP Ruth George said, in terms of Sipps, “that is really worrying if only 25% of people who are taking on these high-risk investments are getting regulated advice and therefore don’t have any sort of buffer”.
It is not clear from the line of questioning if she was only referring to individuals invested in high-risk assets or if she considered all investments in Sipps to be high risk.
Andrew Bailey, chief executive of the FCA, said that the other tactic is “to reduce the incentives to use high-risk investments”.
However, people who go into Sipps, especially after taking advantage of the pension freedoms, tend to do so in order to get greater returns which, unsurprisingly, comes with greater risk.
It is also not clear how the FCA would disincentivise the use of high-risk investments.
Playing catch-up
There was no change in the regulator’s stance that a ban on unregulated assets in Sipps was not needed.
Deborah Jones, director of life insurance and financial advice at the FCA, said that “at present, we remain of the view that there is a place in the market for a wide range of investments”.
“But it’s very important that those riskiest investments, the non-standard investments, are sold only to consumers to whom they are suitable.”
George challenged the FCA, saying that there are still “ongoing cases” where high risk investments are being mis-sold to people.
The FCA has been trying to deal with this issue, since the market “has expanded in the past few years and it’s been hard to keep track of”, Jones admitted.
Bailey said that the market “has evolved in two parts, one is what you could call the high net worth sector, and the other is much different, with people using it for much smaller savings and relying on it much more as a source of income.
“We had to catch up with that evolution, it has caused practices to happen that had detriment. We had to clamp down very hard on the practice of putting unacceptably risky assets into Sipps, and particularly because people are much more dependent on it, that makes it worse.
“There’s a history of the industry feeling that it could do more of what it wanted in terms of assets and that is just unacceptable.”
