SIPP providers are being increasingly targeted for “loan buddy” business, a prime vehicle for pension leakage, warns Andrew Roberts, chairman of Association of Member Directed Pension Schemes (AMPS.)
A "loan buddy" is where two loosely connected parties lend to one another in tandem through their SIPPs.
Roberts said: "You have to treat it with a pinch of salt if the loan is going to be unsecured and ask why is one [SIPP investor] lending to one and the other lending to the other."
At the last AMPS workshop held in February, 28% of 100 SIPP specialists revealed their firms had been approached by people wanting to use SIPPs for this purpose. Barnett Waddingham, where Roberts is currently partner, has also recently refused such proposals.
Roberts revealed that IFAs have been directly asking whether it is possible to set up two SIPPs for separate individuals to enable the loan business, which is not in the spirit of authorised SIPP investment.
"It sounds like they're lending from their own SIPP to themselves and even if they pay the money back with interest, [lending to yourself] that's not a directly allowable investment. And [the loan] could default [resulting in] pension leakage" he said.
Providers could easily turn down loan buddy business from an IFA wanting to set up two SIPPs under their firm, but in the scenario that an adviser sets up separate SIPPs under different providers, it would be more difficult to spot.
SIPP providers dealing with individuals wanting to invest in unsecured loans should be vigilant. Roberts says: "So there's a warning for SIPP providers, should you be lending to people on an unsecured basis? The rules allow it, but is it something you should be allowing in your SIPP product?"
FSA, The Pensions Regulator and HMRC issued warnings in February over an increase in early release pension offers.
McDermott hits back at critics
Global ETF growth rising but UK lags
Combined business will have £11.2bn AUM
Ex-pensions minister sounds stern warning
Fraudulent use of SSAS on the rise