A Malta-based pension trustee has been ordered to pay £40,000 in compensation after the Arbiter for Financial Services found that two high-risk investments placed within a retirement scheme were unsuitable for a retail investor and exposed him to excessive risk.

The case centred around a member of a Qualifying Recognised Overseas Pension Scheme (QROPS), who claimed that the trustee, Sovereign Pension Services Limited (SPS), failed in its duty by allowing investments that were aimed at professional or institutional investors into his pension portfolio.

The investments in question – Escher Marwick and Lombard 82 – later ran into serious liquidity problems. One of them, Lombard 82, reportedly collapsed in value from £246,000 to just £3,690.

The complainant argued that the investments were inconsistent with his stated “medium risk” profile and unsuitable for a pension scheme designed to fund retirement. He also claimed the portfolio lacked proper diversification, with a large amount of money concentrated in speculative products.

SPS rejected the allegations and argued that the complaint was filed too late. The company also maintained that the pension was member-directed, meaning the investor selected the investments through an adviser, while the trustee merely processed the instructions.

The provider further argued that responsibility had effectively ended when the pension was transferred to another Sovereign entity in Gibraltar in 2020.

However, the Arbiter dismissed these arguments and found that the trustee still had an overriding fiduciary duty to protect the member’s retirement interests.

In the decision, the Arbiter noted that around three quarters of the pension portfolio consisted of structured notes, loan notes and medium-term notes, many of which were speculative or unregulated products promising returns of 8 per cent or more.

The ruling stressed that a pension scheme cannot be treated like a normal investment account, even when a client is willing to take some risk.

The decision is significant because it reinforces that trustees cannot simply rely on signed waivers or client instructions to avoid responsibility. Even where an investor signs documents acknowledging risk, trustees are still expected to question whether investments are appropriate for a retirement scheme.

The Arbiter also criticised the concentration risk within the portfolio, finding that the level of exposure to speculative products was inconsistent with prudent pension management.

Ultimately, SPS was ordered to compensate the investor for 70 per cent of the realised losses, amounting to £40,000 plus interest from the date of the ruling.

The decision may still be appealed.