High Court to rule on pension unlocking schemes

The legality of controversial pension unlocking services will be determined this week as the issue returns to the High Court.

The result of a hearing tomorrow will determine what will happen to people who have accessed their retirement savings before the age of 55 if the unlocking services are deemed to be outside the law.

In July, The Pensions Regulator (TPR) appointed Dalriada Trustees to run several of these pension reciprocation schemes.

The independent trustee firm obtained a £1m freezing order against several schemes linked to a company called Ark, banning disbursement of scheme funds pending a legal probe.

Before the regulatory intervention pension reciprocation schemes offered members the chance to release as much as 50% of their pot before the usual legal limit of age 55.

Law firm McGrigors explained the scheme circumvented the rules by transferring the funds to a new scheme, with a loan then being made to the transferring member from another separate scheme administered by the same party of up to 50% of the funds transferred.

The new "master scheme" is then typically invested in assets which, theoretically, yield returns to top up the pension pot to its original level.

Partner Katharine Davies is acting on the matter. She said: "We will ask the court whether the agreements entered into by members of pension schemes are valid.

"There is some debate, for instance, over whether a member whose funds were transferred into one of the schemes at a late stage and who did not subsequently receive a loan will simply be able to have all or part of his or her fund transferred out again."

Pensions reciprocation schemes have attracted criticism from both government and regulators over the past year.

In June, the Financial Services Authority (FSA) urged investors to be "extremely cautious" about offers to unlock pensions.