IFAs and pension experts have warned investors to be wary of “complex” schemes which exploit a loophole in regulations to allow people with a pension pot of £20,000 or more to borrow up to 50 per cent of the value before age 55.
The schemes, called pension reciprocation plans, are being promoted by Premier Pension Solutions.
They allow people to borrow up to half the value of their fund by placing investors’ money into a master pension plan, which is an occupational scheme with less than 100 members.
Each MPP can issue loans to members of a different master pension scheme, sidestepping regulations which prevent individuals taking a loan from their own scheme.
The schemes typically invest around half of a member’s fund in a non-tradable fixed-interest security, with the remaining 50 per cent invested in ECH investments, a property investment vehicle based in the British Virgin Islands.
Investors must repay any loan taken plus annual interest of 5 per cent above the Bank of England base rate. There are also initial fees of 5 per cent plus an annual charge of 1 per cent.
Standard Life head of pensions policy John Lawson says: “These schemes are extremely complex. I would suggest that 50 per cent speculative property investment and 50 per cent in a non-tradable fixed-interest security is not an appropriate diversification for an occupational pension scheme.”
Hargreaves Lansdown pensions analyst Laith Khalaf says: “This scheme is clearly very costly and extremely risky too.”
Premier Pensions Solutions says the schemes are registered with HMRC and the Pensions Regulator and operate within Government rules.