Pension loan arrangements declared illegal by High Court

The judgment, which is expected to affect 400 scheme members, vindicates the Pensions Regulator’s unusual stance of appointing Dalriada Trustees to oversee the running of six schemes after becoming concerned about their legality.

The ruling, delivered by Mr Justice Bean, found the structures within the six schemes run by Ark Business Consulting, which allowed members to make loans to members of other schemes in return for a reciprocal 'loan',  were unauthorised payments under the Finance Act 2004.

Justice Bean also said the loans were a "fraud on the power of investment" and outside the scope of the trustees' powers.

Ian Gordon, partner at McGrigors which is acting on the matter, said: “The judgment represents a victory for common sense, and provides greater safety and security for pension scheme members in future.

“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. The 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 ruling is part of an ongoing piece of 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. There is also a prospect of individuals who entered into invalid MPVA arrangements having to repay the money they borrowed.

Moreover, the MPVA "investments" were found to “not really be investments at all”, according to McGrigors, and many of the  members to whom this money was loaned may struggle to pay it back, leaving members of other schemes with very significant losses. 

As previously reported, much of the remainder of the fund that was not invested in MPVAs has gone into unconventional property related investments, prompting concerns of further losses.

Unusually, the case spent less than three weeks in the court process. Brian Spence of Dalriada Trustees said he was appreciative of the quick decision.

"Although many of our members will not welcome this news, it was essential that the cases for and against these MPVAs were argued thoroughly before the court. I am very grateful to Mr Justice Bean for dealing with the matter quickly and giving a clear ruling on their validity,” he said. 

“The people who established these schemes appear to have had scant regard for the interests of our members and have left a mess that will take several years and further court proceedings to untangle. Dalriada is committed to doing the best we can for the victims of this scheme, but the pensions savings of our members could end up seriously depleted as a result of the way these pension schemes were operated by Ark."