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Regulator welcomes High Court ruling on pension reciprocation

Ref: PN11-31
Monday 19 December 2011

The Pensions Regulator has reminded individuals of the risks of websites or salespeople offering them the chance to cash in their pension pot tax-free before retirement. This follows the High Court’s ruling that so-called ‘Pension Reciprocation Plan’ (PRP) arrangements contravene pension law.

In May 2011, The Pensions Regulator appointed Dalriada Trustees as independent trustees with exclusive powers to administer six schemes operated by Ark Business Consulting. Central to the Ark model was a structure which used loans between pension schemes as a means of unlocking pension capital prior to retirement.

Following its appointment, Dalriada commenced a claim in the High Court to ascertain whether the loans were valid exercises of the powers of investment under the schemes.

On Friday (December 16), Mr Justice Bean found that the loans were outside the powers of the schemes’ trustees, and were therefore void, as they constituted unauthorised payments under the Finance Act 2004. The Court also held that the making of the loans was a "fraud on the power of investment". The judge described the regulator’s intervention as "plainly justified".

The Pensions Regulator’s chief executive Bill Galvin said that the regulator was working with HMRC and the FSA to monitor business models and will use our powers to disrupt them if necessary.

He said:

“We welcome the clarity of this judgment which sends a powerful message to anyone considering setting up a similar operation, whether as trustees or advisers.

“The Court has supported our view that this business model was an attempt to subvert pension law and a threat to members’ pension benefits.

“In this case we were able to identify the risk quickly and step in to prevent more individuals from being taken in, but, sadly, more than 400 members are affected and some will face substantial losses as a result of being misled in this manner.

“It’s vital the members understand the risks: if an offer on a website sounds too good to be true, it invariably is. Operators will often charge substantial commission, and other charges, and members run the risk of having to pay unauthorised payment charges to HMRC.”

Editor's notes

  1. The Pensions Regulator is the regulator of work-based pension schemes in the UK. We have objectives to: protect members’ benefits; reduce the risk of calls on the Pension Protection Fund (PPF); and promote good administration and improve understanding of work-based pension schemes. From 2012 we will have the additional objective of maximising employers’ compliance with their duty to automatically enrol staff into a qualifying pension scheme.

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