The Pensions Reciprocation Plan

Do you have a private UK Pension Scheme?

Would you like to access your pension now with a tax free! lump sum?

You do not have to be over 55 years of age.

This is a new financial product and does not break any HMRC regulations.

Introduction

The Pensions Reciprocation Plan gives a member, through a financial transaction with another pension scheme, the ability to access a lump sum of up to 50% of the value of their pension fund.

This is made available following a transfer of their UK pension fund to a “Master Pension Scheme” (MPS).

The objective of the PRP and how it works

The purpose of the PRP is to maximise and utilise the value of an individual’s pension fund. Although it enables immediate access to a capital sum this is not achieved by giving the member access to his/her own pension fund.

The Master Pension Schemes identified and made available for membership have unique features that are not traditionally available. These Schemes are UK Registered Pension Schemes and fully meet the requirements associated with such schemes. They are also contracted out schemes and so able to receive transfers of GMPs and Protected Rights.

Membership of an MPS facilitates access to the PRP.

In order to benefit from the PRP, members of an MPS are issued with a document known as the “Maximising Pension Value Arrangement” (MPVA). That part of the member’s fund within the MPS, after administration charges, that is not used to benefit from the PRP is invested by the trustees of the MPS in order to provide for retirement benefits in the usual way.

The MPVA is used by the PRP member to give them access to an immediate lump sum to the same value of the MPVA. So, if the MPVA has a value of, for example, £20,000 this may be exchanged for an immediate lump sum of £20,000. The obligations associated with the MPVA are normally discharged when the member takes benefits from the MPS.

How does the MPVA work?

The MPVA is a financial instrument that can be converted to cash by its holder. The amount of cash that can be made available through the MPVA is up to 50% of the member’s pension fund value. The MPVA then creates an obligation on the holder (that is the member of the MPS), to discharge the liability associated with it in up to 25 years time.

This will normally be achieved through the Pension Commencement Lump Sum (typically referred to as the tax-free lump sum) that is available to the member from the MPS at the appropriate time.

As an example, assuming an MPVA term of 25 years and an initial pension fund value of £100,000, then the MPVA would be converted to an immediate cash sum of £50,000 at outset. In straightforward terms this is the lump sum that the member would receive for his or her immediate use.

At the end of 25 years and assuming investment growth of 9% per annum then the member’s interest in the MPS would have a value of £394,500. 25% of this is then available as a lump sum, i.e. £98,625. From this the liability associated with the MPVA of £87,500 (assuming 3% pa simple interest) can be discharged, leaving a residual sum of £11,125 available to the member plus a pension from the remaining fund.

In effect, money is lent from one MPS to a member of another MPS – as they are completely unconnected parties all legislative requirements are thus met.

The operation of the MPS.

The objective of the MPS is to provide members with an income in retirement. As the MPS is a defined contribution (sometimes called money purchase) pension scheme it is not possible to state the exact amount of pension benefits that its members will ultimately receive, of course.

The trustees of the MPS will adopt an investment strategy which will take into account the obligations associated with the MPVA. For instance, as a part of the investment strategy the scheme trustees may invest in the Entrepreneurs Property Fund (EPF). The EPF is a specialist investment portfolio of property and other asset backed investments that is designed to provide a long-term and relatively stable return. The EPF is not available to other pension schemes or to the public generally.

The regulatory position of the MPS

Each MPS is an Occupational Pension Scheme registered with HMRC and the Pensions Regulator.

The people behind the PRP.

The PRP has been developed by companies specialising in developing pension and tax planning solutions, in conjunction with an expert UK pensions lawyer.

Minimum transfer value

The minimum combined transfer value that can be accepted into the MPS is £20,000. There is no maximum.

Charges

Following a transfer in to an MPS an administration charge will be deducted. The MPS will also be subject to an annual management charge.

In most cases an administration fee will be payable for arranging the transfer into the MPS. This fee will be payable by the member providing a written instruction for the relevant sum to be deducted from the payment to him/her arising from the member’s use of the MPVA. Specific details re charges are available on request.

Please ask and we will provide further details and the contacts you will require.

October 2010