‘Zombie’ investments rack up costs as well as losses for pensioners

Pensioners who lost their life savings after a property investment failed are being chased for more money to manage their worthless “zombie” pensions.

At least 150 savers with selfinvested personal pensions (Sipps) have received fee demands from Hartley Pensions, their Sipp provider, for “day to day administration”, despite being locked in a failed overseas development, Harlequin Property, which is untradeable and was deemed worthless in 2015 by the industry compensation scheme.

These savers are among hundreds of investors in Harlequin being chased by Hartley, despite them having no contract with the firm, after it acquired their former Sipp provider, Lifetime, following its collapse in April.

Some of these Harlequin investors had other investments in their Sipp. Lifetime still waived certain fees while it dealt with their complaints. But an email sent by Hartley on July 31, seen by Telegraph Money, confirmed that “annual Sipp fees will be charged” as well as other fees, without specifying a figure. Investors were told to keep at least £1,000 on deposit at RBS to cover “ongoing fees”.

An accompanying document said investors could move their Sipp – and avoid Hartley’s fees – but only if their investments could be sold or if another pension scheme would accept them. This left Harlequin investors trapped, as no other pension provider is likely to accept a failed investment.

Harlequin Property took up to £400m from investors to build off-plan villas in the Caribbean but produced only a handful. “Guaranteed returns” of up to 10pc a year never materialised, and in March 2015 the Financial Services Compensation Scheme (FSCS) effectively declared the capital lost when it valued the investment at nil. Harlequin’s chairman, David Ames, is due to stand trial for fraud in January. The FSCS has since returned some money to investors, but many lost much more than the £50,000 limit.

Sipp investors often rely on investment returns to pay Sipp fees. With no returns and no way to sell the investment or move their Sipp to another firm, Harlequin investors are left paying for a zombie pension that costs rather than makes money.

Hartley’s email told investors with empty cash accounts to “make alternative arrangements for the settlement of our fee”.

Gareth Fatchett of law firm FS Legal, which acts for 150 former Lifetime customers, said: “Hartley is trying to charge Lifetime Sipp holders again without a contract. Harlequin is valued at nil; what is Hartley charging £1,000 a year for? Paying makes people complicit in the contract being imposed on them. Investors need to be aware that the longer they pay the worse it is for them.”

Denis McHugh, chief executive of Hartley, said some Lifetime customers in Harlequin had other investments, so their Sipps had to remain open and chargeable. “Unless the FSCS has taken assignment of the asset [after paying out to the investor] the Sipp would need to remain open, as the investment remains active and held for the benefit of the client,” he said. “The interests of the beneficiaries are at the heart of what we do and we are taking action to protect these interests.”

Fears of cuts to higher-rate pension tax relief in the Budget have been replaced by concern that two other sweeteners will be curtailed, costing pensioners up to £90,000.

Speculation that the Government will cut the tax relief that higher earners can claim on pension contributions has been branded “complete nonsense” by people familiar with the matter. They cited Theresa May’s lack of political capital in the face of heavy opposition to the move from traditional Conservative voters.

Instead, a further cut in the annual limit on pension contributions that qualify for tax relief and tightening of the “tapered” annual allowance for those who earn more than £150,000 are considered much more likely.

Pension experts at Royal London, the insurer, said a £10,000 cut in the annual allowance to £30,000 was realistic. For a higher-rate taxpayer saving into a pension, that would equate to £4,000 in lost tax relief.

Those who planned to maximise their use of pension contributions in the last 10 years of their working life would lose £40,000 from their retirement pot in this way.

A cut in the threshold for the tapered annual allowance from £150,000 to £125,000 would mean that someone who earned just under £150,000, for example, would have £25,000 of their income subject to the taper. This means they would lose £1 in every £2 of annual allowance, or £12,500.

For a 40pc taxpayer this would cost £5,000 a year, or a total of £50,000 in the 10 years leading up to retirement.

Together the loss of these two retirement benefits could result in high-earning pension savers missing out on £90,000 in tax-free pension contributions.

Sir Steve Webb, head of policy at Royal London, confirmed that “some people could be hit twice” if these measures were adopted.

Zombie state: pensioners face charges for a Sipp that is officially worthless