Last year we blogged about the risks of so-called pension reciprocation plans, labelling them as a ‘dangerous’ pension scheme.
These ‘pension reciprocation plans’ claimed to be able to offer access to 50% of the value of pension funds, even to those younger than the minimum benefit age of 55.
The High Court subsequently ruled that such schemes are illegal.
Earlier this week we saw an example of an equally dangerous pension scheme, which has today been reported on the front page of Money Marketing.
The scheme offers commission rates of 16% to the pension investor in return for introducing themselves to the promoter of the scheme.
Commenting in Money Marketing today, Informed Choice chartered financial planner Martin Bamford said:
“This is a terrible deal for the customer and could be in breach of HMRC rules on pension commencement lump sums. The commission paid to the customer could be considered an unauthorised payment and the pension fund could suffer significant tax penalties as a result.”
Pensions are designed to provide an income in retirement and have strict rules regarding the shape of benefits as a result.
Tax-free cash from pensions (more properly known as a pension commencement lump sum) is limited to 25% of the value of the pension in most cases, and only payable from age 55 onwards.
The level of ‘commission’ on offer from this particular scheme makes us suspect that it involves an investment in unregulated UCIS investment funds, which are typically high risk illiquid schemes in esoteric assets.
UCIS investments can only be legally promoted to high net worth or sophisticated investors in the UK.
We hope that the HMRC and FSA take fast and decisive action to shut down this scheme and any others that emerge following this model.
The risks to investors in terms of potential tax penalties, scheme charges and investment unsuitability appear to be substantial.
Photo credit: Flickr/Leo Reynolds
