Pension experts have warned investors to be wary of using “complex” pension reciprocation plans to access loans of up to 50 per cent of the value of their pension fund before age 55.
The schemes, which are being promoted through various channels and are processed by Alicante-based Premier Pension Solutions, exploit a loophole in regulations to allow people with a pension pot of £20,000 or more to borrow 50 per cent of that value.
To do this, the company invests pensions in a “master pension plan”, which is an occupational pension scheme with less than 100 members. Once in the scheme, an individual can borrow up to half the value of their pension from a separate master pension plan.
Each master pension plan issues loans to members of a different master scheme in order to sidestep regulations which prevent an individual taking a loan from their own scheme.
The loan comes out of money invested in a non-tradeable fixed-interest security.
Members’ benefits are typically invested equally between a “secure investment” – the fixedinterest security – and ECH investments, a property investment vehicle based in the British Virgin Islands.
As part of the deal, the individual is obliged to repay the loan 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 exploiting the desperation of individuals who need cash and who are unable to borrow elsewhere. They are also extremely complex.
“Rolling up interest upon interest, particularly at 5 per cent over base, can also create a substantial debt. It might even be enough to wipe out your entire pension fund if base rates rise.”
Premier Pensions Solutions says the schemes are registered with HMRC and the Pensions Regulator and operate within Government rules.