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Pension reciprocation clients facing “significant” losses

Dalriada Trustees has warned investors who tried to unlock their pension fund early through pension reciprocation plans that “significant” losses are “inevitable” as spiralling costs eat away at members’ pensions.

Money Marketing first warned about the risks of investing in pension reciprocation plans in May. The schemes claim to allow people to borrow up to half of the value of their pension fund before age 55.

In June, Money Marketing revealed The Pensions Regulator had appointed independent trustee firm Dalriada Trustees to seize control of the bank accounts of six schemes used for pension reciprocation due to concerns the loans could be legally void.

In July, a High Court judge froze over £1m of fees charged to members of pension reciprocation plans administered by Ark Business Consulting and two related entities.

In a memo sent to members earlier this month, seen by Money Marketing, Dalriada reveals details of the investments made by the schemes’ trustees.

It says the trustees put members’ money into three property investments, Freedom Bay, Cyprus and HYPER, and these have “no realisable value”.

It says Freedom Bay and Cyprus are property developments where construction work has yet to begin, while HYPER is described as a property unit trust that has not yet been listed on the Channel Islands stock exchange.

It says the nature and present value of an additional £1m investment in Entrepreneurs Capital Holdings have yet to be established.
Dalriada’s legal and administration costs are being met from members’ pension funds.

Dalriada says: “There have been significant costs incurred at the outset of Dalriada’s appointment and unfortunately we expect these costs to remain at a high level. Significant reductions in members’ benefits, relative to the amounts transferred in, are inevitable.”

A court hearing to determine the legal status of the pension loan arrangements is expected to take place by early December.


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. Not only have the pension clients been shafted by bad advice but looks like been hit again by high fees by the Trustees. Surely the FSA should sort it out themselves?

  2. @ Anonymous

    As long as it isn’t sorted out by the usual method of sending me the bill.

  3. Anonymous@9.38 – I would guess the vast majoirty (if not all) members did this without taking professional advce – i.e. an Execution Only basis.

    With both the risk of the ‘loan’ and the underlying investment – I would hope most advisers would have seen the problems with this and declined to recommend it.

  4. And let me guess “the commission to the adviser who sold these plans was exactly how much…….?”

  5. If it looks too good to be true, it usually is !

  6. I cannot believe that the FSA has not put a stop to these pension reciprocation plans, some of which are promoted to over 18s who can receive a “loan” of 50% of their pension fund. These “loans” are lent by other pension scheme member’s funds and there is no requirement to pay interest or repay the capital, despite what the documentation states. The balance of their fund appears to be invested in high risk funds which apparently are now going to lose money.

    Not only have the members paid significant charges to access their “loan”, they have been placed into inappropriate funds (which carry a cost) and are now required to fund the cost of the Trustees appointed to sort out the mess.

    When are the FSA going to wake up and block this pension unlocking before we have another pension mis-selling scandal.

    Perhaps they should put “pension loans” into Google and see exactly how these schemes are promoted on the internet!

  7. It is this kind of arrangement that the FSA should be focusing on rather than worrying if an IFA has shares in a platform.

  8. Andrew Whitehouse 17th October 2011 at 8:53 am

    As an adviser who has to meet strict compliance rules when reviewing pensions, why should I or my sensible clients pick up the tab for individuals, happy to give their pension fund to someone they don’t know, to be invested in a way they don’t understand in return for a promise to have half back in cash?

    These schemes tend to be promoted directly to potential users, via the internet and in my experience most adults understand that stepping outside of any normal system involves extra risk – even if they claim not to understand pensions etc.

    Individuals need to take responsibility for their actions – is there now an expectation that whatever silliness people get up to someone else will sort it out & reimburse them when it all goes wrong?

    It’s your money, you look after it and complain only if you took all reasonable precautions and checks – just like your financial adviser has to.

  9. Christopher Lean 17th October 2011 at 9:53 am

    @ Anonymous 8:53.

    A well balanced and sensible statement.

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