Judgment Handed Down in 'Pensions Reciprocation' Case

06 Jan 2012 | 05:00 pm | 2 min. read

Controversial Pension Reciprocation arrangements operated by Ark Business Consulting have been found to contravene pensions law following a ruling in the High Court.

  • Schemes found to contravene pensions rules 

Judgment was handed down in a landmark legal case concerning schemes which purportedly used loans to circumvent HMRC rules preventing savers directly accessing their pension funds before reaching age 55.

The ruling, which was delivered by Mr. Justice Bean in the High Court on Friday, is expected to affect about 400 scheme members with combined savings of around £25m.

Mr. Justice Bean found that 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.

The ruling is expected to be seen as a vindication of the stance taken by The Pensions Regulator, whose intervention in the schemes Mr. Justice Bean described as "plainly justified".

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, a Partner in the Pensions practice at international law firm Pinsent Masons which is acting on the matter, says:

"Today's judgment represents a victory for common sense, and provides greater safety and security for pension scheme members in future. The Pensions Regulator came in for criticism earlier this year for being too interventionist, but this case clearly demonstrates that the approach taken was the right one.

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 that 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.

Delivering his ruling, Mr. Justice Bean said that while there was "evidence that in many cases members had a desperate need for an MPVA loan…. that does not assist in construing the legislation, the purpose of which is to prevent pension scheme members from spending their pension pots before retirement".

Brian Spence of Dalriada Trustees expressed appreciation for the expeditious handling of Dalriada's application by the Court. He says:

"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.

The Court has held that the MPVA "investments" were not really investments at all, and many of the pension scheme members to whom this money was loaned may struggle to pay it back leaving members of other schemes with very significant losses. To add insult to injury much of the fund that was not invested in MPVAs has gone into unconventional property related investments where we are concerned there will be further losses.

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." 

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