The Ombudsman has not upheld a complaint by a member who was unable to close his SIPP due to holdings in illiquid assets (CAS-37994-X1V8). 

The Ombudsman also upheld the scheme administrator's right to continue to charge fees for administering the SIPP, and held that it was not disproportionate for the administrator to set aside £500 in SIPP funds to cover future fees.

The member had withdrawn the bulk of his SIPP's assets over the years and, at the relevant time, the SIPP held assets worth £1705.  The member wished to close the SIPP, believing that the effect of fees on the remaining value would make it uneconomic.  However, three lines of stock held within the SIPP were illiquid and untradeable.  In all three cases the shares in the relevant companies had previously been traded on the Alternative Investment Market (AIM), but two of the companies had been delisted from AIM and one had been suspended from trading on AIM.

The scheme administrator informed the member that the SIPP could not be closed while assets remained within it.  At the member's suggestion, the administrator considered donating the illiquid assets to charity.  However, the administrator said that this could only be done if the assets had been declared to have a "negligible value" by HMRC.  However, in the case of the company suspended from trading on AIM, the administrator had concluded that the stock was not of negligible value, as the member might be able to sell it in future if it came back to market.

The scheme provider voluntarily agreed not to collect any more charges for its part in the management of the SIPP, but the scheme administrator had not agreed to waive charges and required £500 to remain in the SIPP to cover future fees. 

The Ombudsman did not uphold the member's complaint against the scheme provider and administrator.  He noted that under the SIPP T&Cs the administrator had the right to charge fees for as long as the SIPP existed.  The Ombudsman considered that it was not disproportionate for the administrator to require £500 to remain in the SIPP to cover future fees.  The Ombudsman noted that it had been the member's own choice to invest in high risk alternative investments "with a propensity to become illiquid".  The Ombudsman appreciated that the member might not have foreseen that the stocks could become illiquid, but held that there was adequate warning the in the literature provided to the member that he would be responsible for fees, and that it was ultimately the member's responsibility to ensure fees were paid if the SIPP had inadequate funds to cover fees.

Our thoughts

This case illustrates the importance of T&Cs and literature clearly spelling out what fees are payable and what will happen if there are insufficient liquid assets in the SIPP to meet those fees.  Where holdings in illiquid assets prevent a SIPP from being closed, it is possible a member could conclude that it would be preferable for the SIPP to divest itself of illiquid assets by making an unauthorised payment, notwithstanding the tax charges.  This does not appear to have been a line of argument pursued by the member in this case, where the SIPP T&Cs specifically provided that the scheme administrator could not be compelled to make an unauthorised payment.