Court freezes cash on concerns over pension unlocking

Money in pension schemes that give people early access to their funds has been frozen by a court after concerns were raised over the risks posed by the plans.

But hundreds of investors in pension unlocking schemes run by one company could already be set to lose out, it has emerged.

Pension reciprocation plans allow investors to take up to half of their pension fund before they are 55, the minimum legal age for accessing a pension. They work by first transferring the money to a new "master pension" and are marketed as an effective way of getting short-term cash, but investors are at risk of being left out of pocket in retirement.

Newly-released papers show the High Court in London has granted a freezing order preventing three companies promoting the schemes, including Ark Business Consulting, from moving more than 1 million in assets out of the UK.

Some 450 people have transferred 25m worth of funds to Ark, which has invested the money in assets including a Cypriot property firm.

The action was brought by Dalriada Trustees, which was appointed by the Pensions Regulator after it raised concerns over pension unlocking. HM Revenue & Customs (HMRC) has warned that it could charge tax of up to 70 per cent of a fund if cash is unlawfully withdrawn. Ark said HMRC was aware of the scheme, but had taken no action.

The Financial Services Authority (FSA) has also spoken out, urging investors to be "extremely cautious" about offers to unlock pensions. Ian Gordon, a partner at law firm McGrigors, acting on behalf of Dalriada, said: "Many of these so-called unlocking schemes test the boundaries of what is legal and effective, and everyone should be made fully aware of the risks.

"The types of organisations who typically market schemes of this nature are often registered abroad and as such are not regulated by the FSA. We would advise anyone who is approached with an 'unlocking' or reciprocation proposition to proceed with the utmost caution."