Spotting the warning signs of pension mis-selling

As the number of pension mis-selling claims hitting the Financial Ombudsman Service (FOS) rises there is some advice available on how to spot if you’re being mis-sold.

The pension freedoms of 2015 gave savers the opportunity the chance to make their own decisions about what would happen to their retirement pots by using a SIPP (self-invested personal pension).

Many have done so successfully, but an increasing number have found their life savings falling prey to bad and sometimes criminal advice.


In the last financial year the Financial Services Compensation Scheme (FSCS) paid out £123 million to people who had invested in a SIPP which failed and the advisors went out of business.

The forecast for 2020/21 shows an expected payout of £209 million.

Why do they fail?

Top financial journalist Pradeep Oliver explained: “A SIPP is little more than a pension wrapper which holds a variety of investments, It is these investments which bring with them a variety of risks, rather than the wrappers themselves.

“Nearly all Sipp-related complaints are in respect to the investments held within the Sipp failing and the customer losing some, or indeed all of their pension provision as a result.”

Bad advice

Most consumers have only limited financial knowledge and so look to professional financial advisers to guide them on the right route.

Many are successful, but an increasing number are ending in failure because the advice given is negligent.

Mr Oliver says there are a number of warning signs that things might not end up as rosy as they at first seem and has produced a list of seven warning signs:

  • A cold call offering free pension review
  • The cold caller referring you to a regulated independent financial adviser (IFA)
  • The IFA arranging for bespoke service to drop off/pick up signed transfer/investment documents
  • The IFA using terminology such as high returns, low risk, in respect to unusual sounding investments, such investments invariably being based overseas
  • The IFA recommending unusual sounding investments such as off-plan commercial property, forests, diamonds, carbon credits, wind farms, solar power, gas, storage pods
  • The IFA rushing/putting you under pressure
  • You not really understanding what a Sipp is, or how the investment works because it is the advisors job to make sure you understand what you are getting into.


Said Mr Oliver: “Before 2018 a typical Sipp complaint would most likely be about an independent financial adviser (IFA) who advised their client to transfer out of their workplace pension to a Sipp for investment in, say, a property development in Cape Verde.

“Such investments were typically sold as low-risk, high-yielding propositions that could generate a high return for customers.

The reality, however, was very different and the investments were actually very high risk and highly unsuitable for the vast majority of investors.”

“But since 2018 there have been 10 Sipp operator failures as a result of claims being brought against them.

“The reason for this is that there were many customers who were advised by ‘unregulated’ advisors to transfer to a SIPP, for onward investment in high risk schemes as carbon credits, oil, and commercial property.

“As the advisor in such cases was ‘unregulated’ by the Financial Conduct Authority a complaint could not be made to the FSCS or the Financial Ombudsman Service (FOS) because they are only open for complaints about regulated financial persons or companies.”

As a result more and more cases are being brought against the SIPP operators themselves for failing to make due diligence checks on the firms they were recommending.

Such scams are on the increase and consumers must be cautious about where their money is placed and how good the advice is that they are receiving.