The tale of the disappearing pension

In times of distress desperate investors tend to think about taking risks with their investments that, under normal circumstances, they would never consider.

One of the worst current scams is so-called early pension release or  ‘pension reciprocation plans’, because these may involve the serious depletion of someone’s life savings. Under UK legislation you cannot access your pension pot before the age of 55 but at this age you are allowed to extract 25 per cent of your accumulated fund tax free. To discourage savers from breaking this rule, HM Revenue & Customs (HMRC) makes an unauthorised payments charge of up to 55 per cent of any pension payment taken early.

However, newspapers and the internet are full of small ads that promise to help you release as much as half your accumulated pension pot before age 55, often through a loan vehicle. They may do this by transferring your funds offshore, frequently putting the remaining portion into a high-risk investment such as carbon credits or agricultural land in a developing nation.

These sales companies sometimes take as much as 20-30 per cent from the funds as a ‘management fee’ and in the worst cases the perpetrators have simply disappeared with the remainder of the pension fund.

The money trail is hard to track down. HMRC will find you infinitely easier to track down, however, and will hand you a massive tax bill.

The Financial Services Authority (FSA) and The Pensions Regulator have warned investors that such operations could be illegal and are concerned at the increasing incidence of this type of fraud. In May last year, the Regulator 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. Then, in December, the High Court ruled such arrangements illegal, and many firms have subsequently backed off from selling these plans, but others persist. They may claim they are using a ‘legal loophole’ to release funds, when in fact such loopholes are at best questionable.

Indeed the FSA, The Pensions Regulator and HMRC issued a joint press release urging individuals ‘not to be taken in by website promotions, cold-calls or adverts encouraging them to transfer their existing occupational or private pension to a new arrangement in order to access a cash payment or loan’.

Toby Parker at the FSA tells Money Observer that pension release providers are very good at ducking between the FSA, The Pensions Regulator and HMRC, allowing some schemes to fall between the cracks in the regulation, which is why the trio jointly publicised the problem and sent out a warning citing certain types of scheme. The FSA’s own release makes explicit warnings about schemes designed like the two described later in this article, even though Parker adds that each scheme is different and some schemes it has warned about do not fall foul of any particular regulation.

To try to find out for myself exactly how brazen the perpetrators are, posing as a person of 54, with a £200,000 personal pension at a Scottish life company and with just a few months to go until the magic age of 55, I apply for information on these products from various websites and adverts. Most of the companies say it would be disastrous to try to take any cash out of my pension until age 55 when I could take the traditional 25 per cent tax-free lump sum. A few firms are, nevertheless, all too willing to get their hands on my life savings.

For instance, I fill in my details on and I am swiftly rung by a consultant for IPI Services, a sales operation based in Spain’s Costa Del Sol ( A consultant called Wendy Thorby tells me the whole of my pension could be transferred to a self-invested personal pension (Sipp) and invested in ‘high-performance products such as carbon credit, biomass investments or two different types of land, which have all performed well in recent years throughout the recession and are FSA- and government-approved projects’. However, these projects cannot be FSA-regulated because alternative investments such as carbon credits, biomass projects and land fall outside the FSA’s regulatory umbrella.  

The biomass project is operated by a firm called MBI based in Luxembourg and suggests an initial investment of £15,000 will turn in net returns of £140,909 over 25 years. When pressed on the potential returns from the carbon credit scheme, Thorby says that just before Christmas 2011 a carbon credit was worth £2.50 and now they are worth £3-3.25, which is factually incorrect, and that in future a 20-21 per cent annual return was predicted.

Thorby explains there are two choices – to take the 25 per cent cash option and to transfer the remaining £150,000 of my notional £200,000 fund to the investments suggested, in which case she would offer me ‘a rebate’ of 15 per cent or £30,000, or to transfer the whole amount to the alternative investments, taking no cash, in which case she says I receive ‘a rebate’ of 20 per cent or £40,000.

She denies the plan is illegal, saying: ‘The rebate is paid for by the receiving investment scheme, but the full value of the residual pension fund is transferred over and remains invested.

‘The pensions companies can’t pay an incentive directly but are allowed to pay one to an introductory company [without falling foul of FSA rules]. No incentive can be paid directly otherwise back in the UK people would be switching from one pension scheme to another constantly.’

Thorby adds – and this I can believe – that the longest part of the whole process is getting the funds out of the original pension provider, which typically takes 12 weeks.

She says clients who choose carbon credits or biomass would use an adviser called Central Tax, based in Solihull, Birmingham, while those who choose land investments would use a Sipp provider called Brooklands Pensions.

Central Tax, run by directors Ian Paul Smith and Samantha Barrett (no relation to the Money Observer contributor), operates a completely separate Sipp provider called Central Tax and Trustees Ltd. Smith says the vehicle is for execution-only Sipp business and many clients choose forestry investment in Plantation Capital, an appointed representative of Porta Verde Financial Services registered in Egham, Surrey, and founded by Dean Henry and Leigh Charlton. Smith says the risks of such investments are fully explained to investors, but in his view sometimes the public is more financially aware than is often appreciated.

While still posing as a potential client, Adam Amode, an investment adviser at Plantation, suggests I personally invest my Sipp money in bamboo or carbon credits through Royal Exchange Carbon Credits, where the directors are also Henry and Charlton.

Meanwhile, IPI’s Thorby tells me that one other investment on offer – Cayman Island land marketed by Crown World – has risen in price from £17,000 in 2007 to £40,000 in 2011, though she fails to provide a source for this information.

Thorby says clients who take up the offer also receive ‘free access’ to IFA Sovereign Assets, based in London’s Fleet Street and Gibraltar. This firm is run by Christopher Labrow, formerly of Labrow International Asset Management Limited, who in 2006 was named in a press release issued by a firm of lawyers, IURA Despacho Juridico, representing the Costa Del Sol Action Group, a group set up to help investors who believe they have been ripped off by unscrupulous advisers, and was summoned to court at that time. Labrow fails to respond to any of my phone calls or emails.

There is nothing technically illegal about effecting a transfer from a contract-based pension into a Sipp and then investing the money offshore in traditional or alternative investments. The same is true of the incentives suggested by IPI that are paid to the adviser by the end-investment company, and then shared between the adviser and the client – in IPI’s own admission – to get round the ‘incentive’ rules. However, it is precisely such schemes that are highlighted in the FSA’s warning, and it points out that a 55 per cent unauthorised withdrawal tax charge will be levied where pension benefits are taken early.

If IPI’s model is based on a kickback, another type of pension release arrangement allows savers to access their pension fund before age 55 through loans, repayable at age 55. Breatheasy (sic), a subsidiary of Elliott Laurence of Altrincham, Cheshire, which runs, offers me a loan provided I transfer into a Sipp, worth 25 per cent of the pension pot value.

For this, they charge a one off administration charge of £495, plus 25 per cent of any growth in the residual fund. ‘You will not incur monthly interest charges if your loan runs to term, or be required to pay monthly payments in relation to this loan,’ says their letter.  

‘The full amount of the loan, plus 25 per cent of the increased growth of the fund, must be repaid to us at the agreed time of redemption. In the unlikely event that the fund either does not increase, or decreases in value, we will share the risk of this with you.’

Spokeswoman Adele Hunt comments: ‘Please be advised that we are a loan company, the funds that we lend are independently funded. We are able to offer loans to people who either already have a compatible Sipp or who are able and eligible to transfer their pension into a Sipp.’

Ravikanth Venkatesan, listed as the firm’s sole remaining director, refuses to comment when I approach him directly.

And this, really, is the root of the issue. The growing popularity of Sipps has opened the way for advisers without an investment background to stray into the pensions field. Once funds are in a Sipp, anyone can have a go at persuading the Sipp holder that their investment idea is a wonderful panacea for a low-return world and it is perhaps little wonder that naïve investors are prepared to look at hotel rooms, green oil, bamboo, forestry, land and the like.

Pension release dos

  • If you are in desperate need of cash, do explore all other ways of raising it. Did you know for instance that most endowment plan providers will lend you some of your endowment fund prior to its maturity? This is perfectly legal and can be relatively cheap.
  • Always ask yourself – if this is such a good investment, then why is this person still trying to sell it to me? Why have they not saved all the great opportunities for themselves? Why are they not sunning themselves on a beach in Barbados?

...and don'ts

  • Don’t let the cash incentive tail wag the investment dog. The legality of pension reciprocation plans is questionable – the taxman will not forget his 55 per cent share. 
  • Do not deal with anyone who is not a registered independent financial adviser in the UK, as you will be ineligible for the UK Financial Services Compensation Scheme if things go wrong. Advisers selling alternative investments tend to be tied agents who are not subject to the same rigorous knowledge and ‘Know Your Customer’ FSA requirements.

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