Watch out for this SIPP scam

Having a SIPP allows you to decide where your pension funds are invested. But these scammers will ensure you endure a penniless retirement.

I have a personal pension. In fact, I have two, although I doubt either will buy me more than a cup of coffee a week once turned into annuities.

But because I have two on the go – and both are with worthy but boring mainstream investment groups – financial advisers often suggest that I convert them into a self-invested personal pension (SIPP).

The selling points of SIPPS

SIPPs are Government and HMRC approved (obviously because all pension products have to be regulated for tax relief), but all that approval and tax back means nothing if a SIPP holder invests in rubbish. And a recent court case shows how easy it is for well-meaning investors to get suckered into “green” schemes where the real green is the colour of the dollars winging their way out of the pension buyer's savings and into offshore tax havens.

Besides putting your retirement savings in one place, another selling point of SIPPS is that investors can choose their own assets rather than be limited to the standard range. Barring some totally way out exotic investments – no credit default swaps for example – it can be an investment free for all.

Now maybe some of those who bombard my email in-box think I already have a SIPP (which I don't). For they are forever trying to sell me “SIPP investments” or “SIPP-compliant opportunities”. Sometimes, they even phone me.

Hold on. lovemoney.com readers who are up to speed with financial services rules and regulations will know that firms are not allowed to sell in this way. They can't just say “buy this” or “get a load of that”. The FSA bans this form of advice – it's fine if SIPP holders make up their own minds; but it's against the rules to cold call (or send out unsolicited letters or emails with investment advice).

However (there's always a "but") none of the FSA's immensely long and complex consumer protection rule book applies if the firm flogging the assets is not regulated by the watchdog because it does not have to be.

It's investment Catch 22.

There's always a catch

Readers of Joseph Heller's original Catch 22 will recall this exchange: “You mean there's a catch ? “ “Sure there's a catch” Doc Daneeka replied. “ Catch-22. Anyone who wants to get out of combat duty isn't really crazy.”

Pilots who wanted out of fighting  had to prove they were psychologically unfit. But only the thoroughly sane would do this. So no one could ever beat the system.

The investment version is that anyone who has to be regulated does not need regulation while anyone who is not regulated needs regulation but won't get it. And this applies even if the investment is “SIPP compliant”.

There are two scams that feature a lot in this blog. One involves land or property (such as landbanking or so-called hotel schemes) and the other plays on our desire for green credentials (carbon credit trading schemes and land purchases to “protect” the rainforest).

Late last month, Southwark Crown Court was requested by the Serious Fraud Office to freeze the assets of three companies selling “sustainable”, “SIPP-compliant” investments.  The three firms  were Sustainable Agroenergy  (formerly Carbon Credited Farming), Sustainable Wealth Investments(UK) and Sustainable Growth Group. The last of this trio was only set up in early January this year – the other two had a two- to three-year shelf life.

All these firms are now bust and in adminstration, so whether there are any assets to freeze may be a difficult call. Most of their directors live in
Thailand or Indonesia although one, a director of 21 companies since 1997 all of which have been dissolved, popped back to stand as a local councillor in Devon in 2007 for the United Kingdom Indepedence Party. He lost.

The investors, who lost about an average £20,000 each, were told they were buying into plantations of bio-fuel producing jatropha trees in Indonesia and Thailand. They were promised big tax-free dividends and major tax-free capital gains when they sold the forest.

Some 1,500 SIPP owners put £32m into the scheme. Their losses are not covered by any compensation scheme – and they may never see
their cash again.

But there are big rewards out there for selling these phoney investments to green (in more than one sense) pension buyers. In general, commission rates range from 20-25% so some high pressure sales outfits will have pocketed up to £8 mllion for these Asian trees.

So here's a new slogan. Where there's a SIPP, there's a SAP. Don't let yourself get taken in by these scammers.