Pension savers who ploughed cash into the ill-fated Harlequin Property resort investments are facing a financial double whammy that will cost them millions of pounds.
Around 3,400 Harlequin Property investors wrapped their harlequin holdings is a self-invested personal pension (SiPP) or Qualifying Recognised Overseas Pension Scheme (QROPS).
Many providers have valued these holdings at a nominal £1 much to the chagrin of Harlequin and retirement savers, who are left with investments they cannot trade or redeem.
On top of that, pension providers are charging SIPP investors an average £500 a year to ‘manage’ their Harlequin Property investments in a deal that lasts for 10 years, according to lawyers representing many of the disgruntled savers.
Over the term, the fees add up to around £17 million on top of any losses the investors are carrying from the write-down of Harlequin Property holdings.
The lawyers, Regulatory Legal, have identified around 6,000 Harlequin Property investors, of whom 56% put their money into Harlequin Property via a SiPP or QROPS.
The trouble was Harlequin Property was an unregulated investment and falls outside of redress offered by the UK’s Financial Ombudsman Service or Financial Services Compensation Scheme.
Analysts have written down the value of the pension holdings after the construction of villas and hotel resorts across Brazil and The Caribbean halted as the company was beset with problems at home and overseas.
The result is investors cannot get their cash out of their investments, but still have to pay their pension providers management fees even though the investments are frozen.
Regulatory Legal pointed out that Lifetime SiPP investors have the second largest exposure to Harlequin Property, but the provider has valued the holdings at just £1.
Harlequin argues the valuation is inaccurate and unfair.
“Lifetime SiPP and Guardian SiPP are the two companies with the most Harlequin Property investments,” said the law firm.
“As such, they are the companies who will receive the largest amount of management fees, which average £500 a year for each investor for 10 years even though the assets are frozen.
“Whatever happens to Harlequin, these firms will collect their money as their contracts with investors determine the fees regardless of whether the firm is successful or not.”
The Financial Conduct Authority issued several alerts to investors about buying investments through Harlequin Property.
Most of the recommendations to invest were made by IFAs, who placed their business through SiPPs and QROPS pensions.
As a result, the pension providers carried out no due diligence on the investments and have no liability for the investment advice, leaving individual investors to chase IFAs for compensation.