Hybrid SIPP protection / risk spreading advice please

antispamman

Hello

I have a Hybrid SIPP which is run by an IFA - I understand that my investment is protected up to £85k per institution.

A friend of mine told me her story, she had all her pension investments being managed by one IFA who went bust and she lost most of her money - she had quite a sum invested and got very little recovered after years of legal process.

I have been fortunate to have saved over the years and have saved a large amount in this one SIPP, without a thought about what if the IFA goes bust or runs off with my money!

1. Does anyone know if I am able to split and transfer amounts between two or more institutions to spread the risk of loss if a single institution goes bust, or should I (at 54yrs old) start a new SIPP with a different institution and build a separate SIPP pot elsewhere, or am I over worrying?

I have looked around to find out if I am allowed to split / transfer / spread my SIPP around but I wonder if anyone here knows of any pitfalls / gotchas / things to look for, if I do.

Any advice would be appreciated.

Kind regards
lo

AlanP_2

Was your friend invested in standard, regulated UK investments within their pension or something weird and wonderful outside mainstream FSCS protections?

If she lost money when her IFA went bust it sounds as if her money was never invested but was fraudulently appropriated by the IFA.

How would splitting your SIPP across different institutions protect you from an IFA who doesn't even pay the money across to the institution?

In essence, I think you need to work out what your underlying concern is for your pension and then ask a question.


Is it a dishonest IFA?
Is it the possibility that an "institution" goes bust?
Is it the possibility that the underlying fund manager goes bust? 

dunstonh

I have a Hybrid SIPP which is run by an IFA - I understand that my investment is protected up to £85k per institution.

Not quite.

The advice is up to £85k FSCS protection if the adviser firm no longer exists.
The funds are upto £85k FSCS protection per fund house if they are regulated unit linked funds.    £0 if direct investments or 100% of the value if insured funds from the same provider.
The SIPP administrator is £85k FSCS protection but that works differently to banks.

A friend of mine told me her story, she had all her pension investments being managed by one IFA who went bust and she lost most of her money - she had quite a sum invested and got very little recovered after years of legal process.

The IFA is not connected to the SIPP provider (or any pension provider).  So, that scenario is not possible in the way you think it is.  If an IFA ceases trading, the SIPP and the investments continue.   The status of the IFA is irrelevant.  I suspect she used unregulated investments in non-mainstream areas and they failed.      Unregulated non-mainstream investments have effectively been a scam area for the last 15 years.    Most of these were actually put in place by fake IFAs (i.e. scammers pretending to be IFAs).  However, there were a very small number of unscrupulous firms that did it.    According to one source that monitored business over a 5 year period, less than 1% of firms were doing this.

I think you need to be wary of stories like this as if the IFA no longer exists, there wouldn't be a legal process and FSCS protection doesn't require any legal intervention.  In this case, the FSCS would consider the case and pay upto £85k

If she was invested in mainstream unit linked funds then that scenario just wouldnt happen.

I have been fortunate to have saved over the years and have saved a large amount in this one SIPP, without a thought about what if the IFA goes bust or runs off with my money!

The IFA cannot run off with your money unless they hold permissions for client money.   Over 95% do not.  The providers do not give access to the IFA to do that sort of thing.    It is so rare for that to happen that on the rare occasions it did, it made the national press.  And those occasions led to consumer protections and the need for client money to be held in client accounts and not in the name of the adviser firm.    The small number of firms that hold client money are more heavily regulated than those that do not.

1. Does anyone know if I am able to split and transfer amounts between two or more institutions to spread the risk of loss if a single institution goes bust, or should I (at 54yrs old) start a new SIPP with a different institution and build a separate SIPP pot elsewhere, or am I over worrying?

You are over worrying.   Check the FCA register and make sure your IFA is on there:  https://register.fca.org.uk/s/
That makes sure you are not dealing with pretend adviser that is really a scammer.

If your provider is mainstream then it gives you a lot of protection. It won't matter if the adviser fails.  If the funds are mainstream unit linked funds then it doesn't matter if the IFA fails.  Adviser failure is never really an issue unless the investments you are in are unregulated and non-mainstream. (e.g.  Brazilian rain forest, biofuels, cape verde property etc)

gm0

Idea not stupid.  Albeit understanding incomplete.

Yes you can split DC pensions across institutions.  I do this. Platform hedge.  And fund managers if you want.

It is easiest to do it upfront before pensions are accessed.  This is because partial transfers are commonly (not universally) supported.  And partial transfer is rather more difficult to achieve on a crystallised pot - if it is possible at all.

Where partials are not offered by a legacy scheme "full transfer" (which is a legal requirement) can be done to somewhere that does it. This can achieve the same thing albeit in two steps each with a couple of weeks in minimum in cash and out of the market.

As to FSCS -protection there is 85k protection in each SIPP.  There is 100% protection on insured funds (many occupational pensions use this type for trust based pensions) so I would not worry about one of these and just keep using it. 
Very comparable to DB protection which is often an effective ~90% via PPF). 

The above oversimplified in detail but it captures the main points of difference. 

In fact most DC units in UK traded funds and ETFs are additionally protected by being held separately (as discussed above) (via the custody arrangements used for traded instruments.  So the chance of total *permanent loss* is extemely low even if a SIPP platform company goes down messily.

Yet there is a very real chance of blocked access, IT being down, months of inability to vary investments or access income - that risk is real and rather higher.  While lawsuits fly and a rescue organisation is tapped up and transfers made and stuff re-registered.  There is a loophole where customer funds could *in theory* be tapped up to help pay for the clean up of a defunct platform. Such tapping up would likely be aimed at larger pots - broader shoulders and all that jazz.  This risk has not yet actually happened - but insolvency practitioners have tried it as a funding option on a failed outfit with a mixture of regular and illiquid and overseas but on that occasion were beaten off by other legal action.

Those of us that do this sort of tax wrapper and institutional hedging - regard the small additional complexity and small additional cost as a worthwhile risk premium for the reduced "impact" across our pension should an unexpected thing occur.

A single institution with a capped fee will be cheaper than two platforms most of the time) as a risk premium worth paying for reducing the "impact of a scandalous failure" by half.  If you pick platforms and investments carefully (so they match efficiently) the insurance premium is small.

I'll skip the IFA discussion - covered above