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The Untouchables…
By Christopher J Sherliker

In an earlier life, I was the Legal Director of the Occupational Pensions Regulatory Authority (OPRA), 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 scammers. At its 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 percent 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. Most of the pension savings could be lost, leaving the victim ‘member’ to languish in a very poor old age.

Prosecutions supported by OPRA at the end of the 1990s 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 – falls outside the legislation that 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 there?) – are held in a highly risky, unregulated property investment vehicle in a lax, tax-friendly jurisdiction such as the British Virgin Islands, with the other half in a non-tradable, fixed-interest security. Initial fees are also high at 5 percent, with an annual management charge of 1 percent and an interest rate on the loan of 5 percent over Bank of England Base.

As such, it is not for the fainthearted and 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.

Added: 1st June 2011

Christopher J Sherliker is a partner for Silverman Sherliker LLP who provide legal solutions across a spectrum of requirements.  Find out more about Silverman Sherliker LLP.

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