The Untouchables…

In an earlier life I was the Legal Director of the Occupational Pensions Regulatory Authority, the predecessor body to the current Pension Regulator. One of the issues which took up a considerable amount of management and investigatory time concerned a scam called ‘Pension Liberation’. It worked like this.

Gullible people desperate for cash would be encouraged to transfer out of their safe often well funded DB scheme into a ‘fake’ pension scheme, set up by the scammers. At it’s most sophisticated, they would even be given false contracts of employment so that the Inland Revenue (as it then was) would think that there was a genuine occupational scheme. For a significant fee, the ‘employee’ would then be given a cash sum out of the scheme – all totally illegal of course. The scammers had up to 50% of the transfer value, sometimes more as the admin fee, the ‘member’ got his hands on some cash but at a significant cost. And when the Revenue finally caught up with them, as they inevitably did, a massive tax penalty to boot. So most of pension savings could be lost leaving the victim ‘member’ to a very poor old age.

Prosecutions supported by OPRA at the end of the 1990’s largely put a stop to these scams, but sadly it appears that there is a new kid on the block albeit in another guise. They are called ‘Pension Reciprocation Plans’ and work by allowing people under the age of 55 to borrow up to half the value of their fund after it’s been transferred into a ‘Master Trust’ Pension Plan which – it is claimed – fall outside the legislation which would otherwise prevent members taking loans from their own scheme. Half of the funds – it’s only sold to those with a transfer value of £20,000 or more – no point going after the paupers now is it – are held in a highly risky unregulated property investment vehicle in a lax tax friendly jurisdiction such as the British Virgin Islands, the other half in a non tradeable fixed interest security. Initial fees are also high at 5% with an annual management charge of 1% and and interest rate on the loan of 5% over Bank of England Base.

As such it is not for the feint hearted and the financially unsophisticated, and while it appears to be ‘legit’ the FSA are being urged to look into these plans. If they came to me with this as a possible ‘investment’ opportunity I would not touch it with a 50 foot bargepole…and dear readers, while I am of course not authorised to give financial advice, I suggest you should think very very carefully if someone approaches you with this ‘too good to be true’ wheeze…it probably is.