The last few years have been turbulent for Sipps, with unhappy investors, High Court actions and Sipp providers such as Berkeley Burke being placed in administration.
Making high-risk investments in single assets as niche as forestry in Australia, residential property in the US and a holiday home in the Caribbean ultimately led investors winning a multi-million-pound case.
And the saga continues, as Carey Pensions awaits judgement on a High Court case around due diligence – which could subsequently create further ripples in the Sipp market.
However, the problems that have beset Sipps could have been avoided, as Keith Churchouse, director at Chapters Financial observes: “What is sad about Sipps is that they have been polluted by investing into assets that were never liquid or appropriate.
"This was motivated by greed and commission on the part of the adviser, and also on the part of the investor, who might have been unrealistic in their expectations.”
He adds: “The age-old adage still stands – if it looks too good to be true, it usually is.”
And it was never necessary for investors to stake their pension on just one risky asset in the first place.
Alistair McQueen, head of savings and retirement at Aviva, says: “Most Sipp platforms present the customer – or their adviser – with thousands of investment choices.
"And most customers – or their adviser – will choose a portfolio of investment options to diversify their investment risks. Few will hold all their investments in one basket.”
So, what kind of investments are worth investing in Sipps and is there still scope to invest beyond the mainstream asset classes, without landing in trouble?
Crackdowns and lockdowns
Investing in more unusual assets is far less likely than before, according to Jeannie Boyle, executive director and financial planner at EQ Investors: “The Berkeley Burke case made the Sipp administrators responsible for carrying out due diligence on investments made by individuals.
“This has effectively removed the ability of individuals to use their pensions for some of the more exotic investments that are permitted.”
Carl Lamb, compliance director at Smith & Pinching agrees that more exotic options are disappearing, as he says: “Nearly all providers have locked this down, so there’s no more investing in African oil-palm plantations, for example.
"The regulator is cracking down and providers are scared of potential liabilities and problems with getting professional indemnity insurance.”
John Spink, head of financial planning at Drewberry also believes that the market for more exotic asset classes has shrunk, commenting: “Providers are much more cautious about what they offer.”
In addition, Mr. Spink points out that non-standard Sipp investments have created the risk of a ‘double whammy’ for some investors: “There has been a rise in taking out Sipps on the back of DB transfers, so there has been a double risk for people doing the DB transfer, and putting it in something non-mainstream.”
