If you have a type of personal pension called a SIPP (self-invested personal pension) you’ll find yourself with lots of freedom to choose and manage your own investments. This opens the door to a world of unique investment opportunities - carbon credits being one of them.
However, unless you’re an experienced investor with time-served dealing with high-risk investments, carbon credits are unlikely to be a good investment for you. In fact, if it’s your pension that is invested into them, it’s possible you were mis-sold the investment in the first place.
So what do you need to know about pensions invested into carbon credits?
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When regulations came in to reduce the amount of carbon dioxide that companies can release into the atmosphere, there had to be some kind of monitoring and regulation introduced. This is where carbon credits came in. One carbon credit is essentially a permit that allows the owner to emit one tonne of carbon dioxide or other greenhouse gas.
Carbon credits try to reduce greenhouse gas emission into the atmosphere. They act as a financial incentive for companies to lower their emissions - both in avoiding fines for high emissions and being able to sell any excess allowance in carbon credits to other companies.
Because carbon credits can be bought and sold on the world stage, the carbon credit system quickly turned into a market where companies, traders and investors could all buy and sell carbon credits. As a pension is just a pot of money which can be invested, it can be spent on carbon credits. These credits can then be saved up or sold on.
While they might sound good in theory, in practice carbon credits are a tricky investment. Let’s look at a few of the drawbacks for having your pension invested into carbon credits.
Carbon credits are not currently regulated by the Financial Conduct Authority (FCA). This means that if anything goes wrong with the investment, or if the company offering the investment go bust, your money will be lost with little chance of recovering it.
Projects that generate carbon credits tend to be based overseas. This is a red flag when it comes to investments are UK authorities have no way of controlling the quality of these schemes, ensuring their validity or regulating their practices. This puts your investment at much higher risk as if the project goes bust, your money will be lost too.
Many investors have reported they can’t sell or trade their carbon credits. This means they can’t make a profit, but they also can’t access any of their funds until they’re sold. In the context of a pension fund invested in carbon credits, for as long as the money was tied up in carbon credits that are hard to shift, you wouldn’t be able to access your retirement fund.
Being such a risky product, carbon credits are only suitable for a select few investors. Those with experience dealing with high-risk investments and with lots of money behind them might find them a good product to invest in, but they should never be sold to a regular pension holder saving for their retirement. Pensions invested into green energy schemes are similar investments that are deemed too high risk.
So if you were sold carbon credits as part of your SIPP investment portfolio, they may have been mis-sold - especially if any of the following occurred during the sales process.
If your advisor didn’t let you know that carbon credits aren’t regulated by the FCA and that you’ll have little to no financial protection if things go wrong, it’s grounds for a complaint.
Carbon credits have always been high risk, so this shouldn’t be new information for any credible financial firm. If you weren’t warned of the high risks involved and what that means in terms of fluctuating profits and losses, then it’s likely they were mis-sold in the first place.
If you were advised to switch your pension over to a new scheme involving carbon credits (or any other high-risk investment) when your old scheme was more suitable to your needs, it’s classed as bad advice and you’re within your rights to make a claim against the advisor.
This could suggest one of two things - negligence on the part of a legitimate company, or a scam. Carbon credit investments used to come with big commissions for financial advisors, so there have been cases where the sales process was rushed without all the proper suitability checks being made.
Convincing you that a deal has a time limit to discourage you from seeking proper financial advice is also a popular tactic used by pension scammers.
Carbon credits are just one of the forms pension scams can take. Knowing how to spot a pension scam can help you keep your money safe and out of the wrong hands. In the case of carbon credit scams, watch out for:
If you think you’ve been a victim of a pension scam, don’t panic. The FCA’s ScamSmart website is a good starting point for reporting scams and figuring out your next steps.
If you were mis-sold carbon credits by a regulated financial advisor, you may be able to make a claim for compensation. Your pension pot may already be at risk in this case, so seek legal advice as soon as possible.
The first thing to remember is that it is not illegal to have carbon credits in your pension fund. However, as this is still a relatively new market, the general consensus seems to be that it is not the most appropriate investment for a pension fund.
One of the main provisos with regards to pension fund investments is the idea that they must be fairly liquid. We know from case studies that many investors in carbon credits have struggled to find buyers when they needed to liquidate their position.
If you believe that you were mis-sold carbon credits as an investment for your pension fund, then you may be able to claim damages from your financial adviser. There is an argument that even if you agreed to the investment, is it really appropriate for a pension fund?
What happens if the individual was retiring in a few years and they had difficulty selling their carbon credits? There’s also some concern over the carbon credit schemes themselves, many of which are located offshore. We know there is a market, a market which will grow as regulations tighten, but this market has been prone to manipulation and scams.
Even the simplest pension damages claim can very quickly become very complicated once you dig deeper, looking for evidence of negligence. Even though these markets are still relatively new, many claims management companies will have experience in this particular area and other similar scenarios.
They know the information required, they know the level of evidence needed, and they also know how to present your case in its most favourable light. These are all very useful skills to have when pursuing damages for mis-sold pension scheme investments.
First of all, you need evidence of negligence regarding mis-sold pension fund investments. After collating as much information as possible, it is time to approach a claims management company for a review of your case.
If they believe you have a minimum 60% chance of success, the chances are they will offer you a “no win no fee” arrangements. This effectively means that you are not eligible to cover any fees the claims management company may accumulate when pursuing your case. However, in exchange for this arrangement, they will look to secure a “success fee”.
A “success fee” is an arrangement by which the claims management company will receive a percentage of any compensation received. While the level will vary from case to case, the average “success fee” is around 25%.
There is nothing stopping you from pursuing your own damages claim against your pension adviser or other negligent third parties. However, if the claims management company has turned down your claim, they have done it for a reason.
If they believed you had a minimum 60% chance of success, then they would likely have offered to take on your case. While you can still pursue your own claim, if the experts are suggesting it is borderline at best, then you may be hit with expenses you can afford if you are unsuccessful.
Here at Money Savings Advice, we have partnered with some of the UK’s leading Financial Claims management companies. They have already helped thousands of people claim compensation for a mis-sold pension and they can do the same for you.
Choosing an independent claims management company means they won’t proceed with a claim unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these claim management companies who can help you make a compensation claim, then click on the below and answer the very simple questions.
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