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Loan Notes

Loan notes are not always a safe option for pension holders

Self-Invested Personal Pensions (SIPPs) are designed to give pension-holders greater control over what happens to their pension funds. They are free to invest as they see fit including the option to give loans to unconnected third parties, providing the borrowing is on a commercial basis and carries a maximum term of five years.

These loans or “investments” are typically secured by loan notes – legal documents that record the existence of the debt between a borrower and lenders along with any terms and conditions applied, like repayment terms and interest rates. It’s essentially a contract between the lender and the borrower. If a borrower fails to meet the terms and conditions of the loan note the lender has a legal document to fall back on to protect their money if the worst were to happen. 

That’s the theory at least, and it’s also likely the story told to many pension holders who have been wrongly persuaded to invest their pension funds into Unregulated Collective Investment Schemes (UCIS).

Wrongly sold as a safe investment option

Many pension holders have been led to believe that loan notes are a safer, more predictable investment option than traditional stocks and shares given that they are not at the mercy of the stock market. This claim is sadly misleading and often touted by dishonest advisers looking to earn high commissions.

The formula, they say, is simple. A UCIS groups pension holders’ funds together and then lends this money to third party businesses in the UK or overseas. After a set period of time, the third party then starts paying a fixed interest rate return, as defined by the loan note. The UCIS takes 1% from this return to cover “administration costs”, leaving the balance to be shared out among UCIS holders at set intervals.

Regrettably for UCIS holders however, events don’t always play out this way. Unexplained delays in payments are common. Or worse still there have been many cases where third parties have ceased trading, leaving little in the way of recoverable assets for the UCIS and, in turn, the pension holders.

Unregulated advice and unrecoverable funds

Lakeview UK Investments and InvestUS are just two examples of the many UCIS set up on this type of model, along with the more obviously named Aigo Loan Notes which was heavily touted by the now infamous Bank House Investment Management Ltd, Henderson Carter and Financial Page.

Unfortunately for clients of these firms and many other pension holders too, SIPP investments made using loan notes are not normally regulated by the Financial Conduct Authority (FCA) or covered by the Financial Services Compensation Scheme. A fact these so-called financial experts failed to disclose to their customers.

This makes it very hard for investors to recoup their money except in certain circumstances. These being if the advice was given by an advisory firm appropriately regulated by the FCA, or if it can be proven that the SIPP provider failed to apply an appropriate level of due diligence in their processes.

We know how crushing it is to learn that your hard-earned money has been lost due to poor or negligent advice. Particularly when you had been led to believe that you were taking a safe, secure option as many of those investing in UCIS did.

If you have found yourself in a situation like this, Beat the Banks are here to help. Take the first step to reclaiming control of your finances and call us on 0800 193 1234 for a no-obligation chat to see what we can do for you.

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