Pension Reciprocation Plan – clients face significant losses

A “Pension Reciprocation Plan” was a way of releasing money from a pension fund – like pension loans – that was popular a few months ago. There were claims that you could borrow up to half the value of your pension fund. But in June 2011 The Pensions Regulator seized the bank accounts of six Pension Reciprocation Plan schemes, because of their concerns that their loans were not legally valid.

TPR appointed Dalriada Trustees to take charge of the funds from the Pension Reciprocation schemes. And MoneyMarketing now reports that the unfortunate clients of those schemes are now facing “significant” losses of their money –

“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.”

We do not know of any companies who are still offering Pension Reciprocation Plans as a method for pension loans. But if you come across one, it seems to be a strong case of “buyer beware”!

Update: the High Court ruled in December 2011 that Pension Reciprocation Plans were illegal – though it seems likely that this decision will be appealed.