Personal finance
Investor wins battle as Ombudsman gives ruling on pension cash
A PAISLEY-BASED investor whose public sector pension was switched into a raft of exotic and unregulated investments has had his complaint upheld by the ombudsman.
Graham Brown, 59, transferred his benefits worth £160,000 from the Strathclyde Pension Fund into a self-invested personal pension (Sipp) in 2013.
His experience was highlighted by The Herald last May to illustrate the potential perils attached to pension transfer.
Mr Brown used Kent-based Portal Financial, a pensions specialist that advertises widely and offers pension release and other services to people over 55.
Now the Financial Ombudsman Service has ordered Portal to compensate Mr Brown after finding it put 85 per cent of his cash into “complex and sophisticated investments which presented a significant risk to Mr B’s pension fund”.
Portal assessed Mr Brown as an inexperienced and “moderately cautious” investor.
It then recommended he plough £60,000 of his pension assets into Hypa Raithwaite LP Fund, which makes loans to a Yorkshire property developer, £24,000 into Venture Oil Investment, and £18,000 split between Kudos Asia, a leisure resort in Thailand, and EOS Solar, a solar energy scheme in Cyprus.
The resort was never developed, EOS Solar is in liquidation, Venture was hit by the oil price crash, and the property developer Skelwith has failed to make scheduled interest payments into the Hypa fund, whose main asset is the Raithwaite Hotel in Whitby.
Portal admitted last year that Skelwith had fallen behind in its payments but was “still totally confident all monies owed to clients will be realised within the original time period for capital to be returned”.
Mr Brown proceeded with the plan, in spite of a regulatory recommendation by Portal he remain in the Strathclyde fund because of its benefits, because he was in need of capital. He took £40,000 as a tax-free lump sum.
Portal said it highlighted to Mr Brown 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.
Mr Brown was also “required to sign a specific document confirming he understood and agreed to the liquidity limitations,” Portal told The Herald last year.
Ombudsman Philip Miller says Mr Brown was unemployed and living off savings of approximately £4,000 at the time, with outstanding mortgage debt of £23,000. “The transferred pension represented his entire pension provision and he had no other investments. Mr B complained about the advice when the income he understood he would receive was not paid.”
Mr Miller says unregulated investment schemes of the type chosen by Portal are “inherently higher risk schemes which, in turn, give rise to exchange risk, potential political and economic instability, and the potential for default”.
Hypa Raithwaite LP Fund, claiming to return between eight per cent and 11 per cent a year, was said by Portal to be similar to a “buy to let” investment.
Kudos Asia, which was admitted to be “medium to high risk”, promised a 10.75 per cent return.
‘‘ I believe as a low risk investor this unregulated investment did not fit my attitude to risk
Venture Oil Investments, quoting a 15 per cent yield ,traded oil, which at the time was selling for over $100 a barrel. Portal “said it .... believed that over the investment period, the price of crude oil was likely to increase”, the ombudsman says.
He notes investments offering double-digit returns “would be reasonably expected (to) involve a higher level of risk”.
His report rejects Portal’s claim the investments offered low volatility and long-term asset backing. “Cautious investments could in any case have been available without the volatility of the stock market.”
Portal had also claimed their client had a “suitable level of capacity for loss”.
But the ombudsman says: “In the event this pension suffered a significant or total loss of value, as can happen with UCIS (unregulated schemes), this would have a large impact on Mr B’s quality of life in retirement.”
Mr Miller said compensation aimed to put Mr B “close to the position he would now be in if he hadn’t been given unsuitable advice.”
Another Portal client, Stephen Clark, recently contacted The Herald. He has told the company he is unhappy with “portfolio administration and the lack of communication specifically regarding my investments with Venture Oil and Hypa Braithwaite”.
Mr Clark says: “I believe as a low risk investor this unregulated investment did not fit my attitude to risk.
“Given that this investment has not paid any interest since 2014, I am not as confident as Portal Financial is all monies owed to clients will be realised within the original time period.”
He has now lodged a complaint with the Financial Ombudsman Service.
A spokesman for Portal said: “We have been very disappointed with the behaviour of some of the parties involved in the investments under the Hypa Raithwaite scheme.
“However one of the things that made us comfortable with recommending it in the first place was the level of security provided.
“This security is currently being invoked through the courts and we are expecting a satisfactory resolution very soon.”
He did not comment on the other investments, and said Mr Clark’s complaint was in progress.