A PAISLEY-based investor has lodged a complaint with the Financial Ombudsman Service about the terms and performance of his transferred former final salary pension.

The case highlights the investment risk attached to transferring a pension, and  the need for an understanding of the terms and conditions of any scheme.  

Graham Brown requested a transfer from the Strathclyde Pension Fund in 2013, after personal circumstances prompted a need for access to capital.

He switched his fund to a pension wrapper managed by Kent-based Portal Financial, and was able to take £40,000 of capital tax-free. The balance went into the wrapper, some as 'cash' but £92,000 in investments.

Mr Brown says that with savings rates at rock-bottom levels, he was attracted to the plan by its target returns of “up to eight per cent”.

His cash was invested into four funds, which made loans to the developers of a range of business projects. These included a solar energy scheme in Cyprus, since forced into liquidation after being caught up in the Cypriot financial crisis, a luxury resort in Thailand, and a US oil trading business which has operated successfully.

Nearly 60 per cent of the funds, or £55,000, was invested in Hypa Raithwaite Exempt Unit Trust, under which the money was loaned to a Yorkshire property developer Skelwith. Its biggest asset is the Raithwaite Hall Hotel in Whitby.

Mr Brown believed the investments were “not risky”, and proceeded with the plan in spite of a formal recommendation by Portal that he remain in the Strathclyde fund because of its benefits.

Portal said it highlighted to Mr Brown that the bulk of his capital after investment would be illiquid – giving him limited access to cash – with capital only returned to him when the development loans matured, along with any interest accrued. The term of each fund varies and, in some cases, can be extended at the discretion of the fund managers.

A spokesman for Portal said: “Mr Brown’s stated intent was to live off the tax free cash amount for the next few years and not to take any further income from the pension for seven to eight years.

“As well as the discussions and the explanation in the suitability report about the lack of liquidity in the investments chosen, Mr Brown was also required to sign a specific document confirming he understood and agreed to the liquidity limitations.”

However, Mr Brown and Portal are now disputing the terms of the scheme.

Mr Brown told The Herald: “I expect to receive interest from year to year, and to receive income drawdown at annual intervals.” He said he has evidence to show that he has received income from the pension scheme.

But Portal said Mr Brown has only been able to access the cash element of his funds, and that the income drawdown will only take effect after the funds reach maturity and the capital is returned to the investor.

Moreover, Portal insists that while interest is calculated each year, it is only paid when the funds mature. Investors do not receive interest as they would from dividends on shares.

Mr Brown is also “deeply concerned” about the trading prospects for Skelwith.

In an annual review of his pension seen by The Herald, Portal admits that Skelwith has invested in more property than originally envisaged, and concedes that the situation “creates unnecessary concern for clients” who have invested in it.

The pension company also concedes in its letter that Skelwith, which pledged to return the capital advanced to it in 2018 or 2020, has only made a single interest payment since Mr Brown invested, and that it was at lower than the 8 per cent targeted. It admits that no interest was paid in 2014. The interest Skelwith is due to pay under the agreement remains within the wrapper until the fund matures.

The spokesman said: “The bulk of the interest owed by the developers to the Hypa Raithwaite fund has rolled up as a debt to investors such as Mr Brown.

“Although such roll-up is permitted within the terms of the fund, this is clearly not what was expected nor was it the intended method of operation of the fund.”

However, Portal stressed that the late payment of interest was down to a commercial decision by the developers, “rather than due to any trouble with the developers or with the fund itself.”

Portal, which said Skelwith will face a penalty for late payment, added that it is “still totally confident that all monies owed to clients will be realised within the original time period for capital to be returned.”

It said it is working closely with Skelwith to resolve the matter quickly, which has led to the developers to negotiate the sale of one of its larger properties.

“In addition, further investment in the company is being sought from a current major backer,” Portal said.

“Once the money comes in from either or both of these sources, it will be used to pay the outstanding interest that investors are owed, plus a penalty for late payment.”

But Mr Brown said: “It’s a highly disconcerting situation.” He said he was relying on further income from the funds to pay for roof repairs.

“I have received no interest, I’m unable to access capital and I’m unable to access the income drawdown. I’ve been told the capital is safe but there is no timeline as to when this will be resolved.”

Mr Brown has lodged a complaint with the financial ombudsman, and Portal has a statutory eight-week period in which to respond.