Pension unlocking schemes ruled unlawful

Pension reciprocation, or pension unlocking, agreements operated by Ark Business Consulting are illegal, judges in the High Court ruled on Friday.

This means members who used the company's services to access their pension pots before the age of 55 are likely to lose a proportion of their savings.

The case concerned schemes which used loans to circumvent Her Majesty's Revenue and Customs (HMRC) rules preventing savers cashing in their pensions before age 55.

The ruling, from Mr Justice Bean , is expected to affect about 400 scheme members with combined savings of some £25m.

Judge Justice Bean ruled controversial maximising pensions value arrangements (MPVAs) structures used to allow members to make loans to members of other pension schemes in return for a reciprocal 'loan' were unauthorised payments under the Finance Act 2004.

He also found that loans were a "fraud on the power of investment" and outside the scope of the powers of the trustees.

Intervention by The Pensions Regulator (TPR) into the schemes was "plainly justified", he said.

In May this year the regulator appointed Dalriada Trustees, a professional independent trustee, to oversee the running of six pension schemes which used the MPVA structure after concerns were raised about their legality.

Ian Gordon, partner at law firm McGrigors which acted on the matter, said the ruling was a victory for common sense and provided greater safety and security for scheme members.

"There are any number of pensions unlocking schemes out there which have been devised to take cash out of people's pension pots and put it into dubious-looking investments and to take a commission for the privilege.

"We believe today's judgment will help stem the flow of money into schemes of this kind, and that can only help pension savers confidence in the long term."

The judgment is the latest stage in litigation concerning schemes which apparently offered members early access to their pension funds.

Further proceedings are under way to try and recover £1m worth of commissions levied by advisers selling MPVA plans, and there is also a prospect of individuals who entered into invalid MPVA arrangements having to repay the money they borrowed.