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How fraudulent advisors used the environment to mis-sell pensions

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SIPPs (Self-Invested Personal Pensions) give pension holders much more control over how to invest the money in their pensions. With this greater control, pension holders can decide to invest in schemes which they think will produce a greater return. Additionally, pension holders can invest in schemes they feel passionate about.

Unfortunately, fraudulent advisors have used these common human traits to get people to buy environmentally-friendly schemes. For the vast majority of pension holders, however, these schemes were completely inappropriate. In other words, the advisors mis-sold the investments.

How did this happen and how widespread is the problem?

Jumping on the Environmental Bandwagon

When SIPPs were introduced, many unscrupulous financial advisors saw an opportunity. That opportunity involved green investment schemes, i.e. investment schemes that promised a financial return while also helping the environment.

The logic was simple, i.e. the financial advisors could now approach pension holders with two compelling sales messages – the expected financial returns of the investment and the fact the investment is environmentally friendly.

In other words, these fraudulent advisors put two and two together and got a big fat profit.

Why is this a Problem?

Does the above really matter, however, if the people investing their SIPP got the return they expected and if the scheme did help the environment?

It wouldn’t matter as much if that’s what happened. It didn’t happen, though.

Instead, many environment-related SIPP schemes went very wrong. As a result, investors, including pension holders, lost money. In some cases, those losses amounted to their whole pension fund.

The investments went wrong for a variety of reasons. Here are some examples:

  • Green oil plantations – in this scheme, SIPP holders invested in a company that was planting trees in Australia that could be harvested within two years. Oil could then be extracted from those trees and turned into biofuel. So, it was a green investment scheme that promised healthy returns. The company went out of business, though, leaving investors back in the UK with nothing.
  • Carbon credits – carbon credits give companies the right to emit CO2. When a company doesn't have enough carbon credits for the CO2 it needs to emit, it must purchase more. The aim of the scheme is to encourage companies to reduce their carbon emissions to avoid purchasing carbon credits. So, carbon credits have well-established green credentials. They are also an investment product, so have been offered to some people as an option for investing their SIPP. The carbon credits market is incredibly complex, however. This meant the reality for many investors was lost money.
  • Renewable fuels – this scheme involved a company called Elysian Fuels. Investors putting their SIPPs in this scheme believed they were investing in a renewable fuel refinery in the UK and a US-based bioethanol facility. Many of these investors lost their money, however. One of the reasons for this was the fact the US facility was sold. In addition, oil prices dropped, plus Elysian Fuels ultimately went into liquidation.

Isn’t Every Investment a Risk, Though?

Yes, all SIPP investments carry an element of risk. However, rules in the UK mean high-risk investments, such as those not covered by the Financial Conduct Authority, should only be offered to experienced investors.

In other words, green investment schemes like those above and others like them should never have been offered to individuals looking to invest their SIPP. This is where the mis-selling took place.

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