The High Court has wound up two organisations for operating an £11.9 million misleading pensions liberation scheme.
Clients were encouraged to use their pension savings to buy shares in Liverpool-based KJK Investments, which would then increase by 6% in value each year.
The 209 clients were also told to obtain a loan from another firm, G Loans, with the share returns enabling them to repay their loan from the proceeds of their pension upon retirement.
The schemes included both personal and workplace pension schemes. Clients of workplace schemes were told by KJK to transfer pensions to a self-invested personal pension scheme, with employers also contributing to those schemes.
Over a two and a half year period, £11.9 million was invested into KJK, while G Loans provided £6.3 million worth of loans to the same clients.
The investigation found that KJK was not a commercial lender, as it claimed to be, but that a significant portion of the funds invested by the clients were, in fact, lent by KJK on uncommercial terms to G Loans.
This was the only means by which G Loans was able to provide loans to the clients, meaning the loans that clients received from G Loans were in fact funded from their own pension funds invested in KJK. This was not made clear to clients.
Eventually, G Loans could not repay KJK and it in turn could not pay a dividend to the clients that had invested.
Remaining funds invested in KJK were also used to make loans to other associated companies on uncommercial terms and to pay substantial commissions, fees and salaries to those involved in the operation of the companies.
Sales commissions totalled in excess of £900,000 and the directors received payments totalling £490,000.
The court ruled that the scheme lacked any proper commercial basis and that there was no realistic chance clients could get back the funds from their pensions that they had invested in KJK.
Colin Cronin, investigation supervisor at the Insolvency Service, said: “Pension liberation is being widely promoted as an easy way of gaining early access to pension savings, particularly given the recent changes in pension legislation.
“Any schemes offering such benefits should be viewed with caution and independent financial advice should always be sought before entering into such a scheme.
“In this case clients were not told that they were obtaining loans funded directly from their own pension pots.
“The Insolvency Service will investigate and bring to a halt the activities of companies that mislead clients in this way and that are found to be operating against the public interest.”