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West Wales News Review — analysis with a sustainability slant

Archive for the category “Pensions”

Financial Conduct Authority has Investigated Corran Company

Down on the marshes at The Corran Resort and Spa, Laugharne, at the development into which investors – including pension savers — poured over £19 million and lost nearly all of it, the hotel management are advertising multiple job vacancies, for a receptionist, therapists, housekeeping supervisor, spa cleaner, and food and beverage team members.

The recruitment boom comes after the Financial Conduct Authority has investigated former owner Kayboo Ltd.

Keith Stiles, a director of the insolvent Kayboo, bought the hotel through his new company Glendore Real Estate Ltd for £150,000 in a pre-pack deal just before Kayboo went into administration.

The administrators, HBG Corporate, took over on October 18th 2016 but are now seeking creditors’ permission transfer the steaming hot potato to Robert Dymond and Lisa Hogg of Wilson Field Ltd of Sheffield, for a creditors’ voluntary liquidation.

Liquidation has been held up since November, while the Financial Conduct Authority investigated “various matters surrounding the company”. The results of their investigations have not been revealed.

Not that there is much left to liquidate. The administrators say that “For the period 12 November 2016 to 8 March 2017, the Joint Administrators have received £33 of interest into the estate bank account, held for the benefit of the creditors.”

HBG Corporate clocked up £47,975 in fees — £17,000 of which have been paid — and £33,753.31 in disbursements, totalling £81,728.31. Administering a bust company is an expensive business.

For previous history see, for example, here, here, and here

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Beware Opaque Investments

Too many cooks spoil the broth. Too many companies in the mix may damage your investment.

We are in an era of low returns, but people saving and investing for pensions want – need — to generate more than 1% or 2% a year, and The Corran hotel scheme at Laugharne, ostensibly offering leases of hotel rooms, or of fractions of hotel rooms, appeared to offer just what they required.

Rowanmoor Trustees Ltd, trustee of The Rowanmoor Pensions Self-Invested Personal Pension Scheme, approved investments in The Corran for pension clients. One of those clients showed me a copy of his ‘Agreement for Sale of Membership of a Company’. Not ‘for sale of a lease’, note.

The agreement was between the ‘Founder Member’, Kayboo Ltd, the company owning some of the property shown in marketing materials for the scheme, and Rowanmoor Trustees Ltd.

Kayboo “wishes to procure the admission of the Purchaser (the pension client) to membership of the Company…”  The ‘Company’ is Hurst House Fractional K Ltd, one of the fractional ownership companies set up to hold the leases. Hurst House is the former name of The Corran.

“The Company has/shall enter into a 999 year lease (“the Term”) granted in accordance with the laws of England and Wales… The Lease entitles the Company to 365 days usage of the Property in each year,” said the agreement.

Further on, the document says “The Company has entered into a lease agreement with the Founder Member.”

Well, that did not apply in most cases because only three leases had been completed when Kayboo and its sister company, hotel management company East Marsh Operational, went into administration in October 2016, four years after the first ‘leases’ were sold to well over 400 investors who paid in some £19.21 million. Around £2.52 million of that was returned to investors – their own capital, not rents from the hotel, according to abbreviated accounts presented to anxious investors in summer 2016.

The complexity of the scheme is clear from the agreement, which describes roles for the ‘Founder Member’ (Kayboo Ltd), the ‘Company’ (in this case Hurst House Fractional K Ltd), the ‘Purchaser’ (the pension client, represented by Rowanmoor Trustees Ltd), and also the ‘Manager’ (East Marsh Operational Company Ltd, supposed to hold a sub-lease from Hurst House Fractional K Ltd).

Rowanmoor Trustees took care to curtail their own liability. The document states that “In the event that the Purchaser is required to provide warranties under the Sub Lease that the liability of Rowanmoor Trustees Ltd shall in all respects be limited to the assets of the Rowanmoor Pensions self invested person pension for the Scheme Member”.

So apart from a risk to its reputation, Rowanmoor Trustees Ltd – Kayboo’s counter party in the agreement – removed liability risk from itself.

Rowanmoor used to market itself as the UK’s largest independent small self-administered scheme provider, but in July 2016 was bought by Embark Group in a private cash transaction. Rowanmoor’s managing director Ian Hammond chose to retire.

A problem for any investor in such an opaque transaction is that no participant will intend to work for nothing. Everyone will seek a slice of the pie, making the advertised returns – varied between sales agents, but around 10% a year for ten years and 12% annually for the next five, and repurchase at 125% of the sale price in years five to 14 and 150% in year 15, even less likely to materialise.

For reasons that are hard to fathom, the administrators – Harbour Business Group – sold The Corran to Glendore Real Estate Ltd, a company of which Keith Stiles, a director of the failed Kayboo, was in January 2017 the sole director. The price? £150,000 – when investors had piled in over £19 million.

The scandal also raises questions about the due diligence – or lack of it – undertaken by pensions providers.

More for Me, Less for You

Jumping Out of an Underfunded Pension Scheme

Interesting arithmetic in Jacob Williams’ run-down of illegal (as judged by the Wales Audit Office) in-lieu-of-pension payments for the most highly paid officers in Pembrokeshire and Carmarthenshire county councils. In both authorities, the chief executives opted out of the local government pension scheme and received ‘pay supplements’ to compensate them for losing the benefit of employer’s pension contributions.

In Pembrokeshire — but not stated to be so in Carmarthenshire — the ‘pay supplement’ for the chief executive, Mr Bryn Parry-Jones, amounted to 14.7% on top of his salary, made up of 12% to replace the employer’s contributions that would have been paid into the pension scheme for his own future benefit, and 2.7% that was supposed to go into the pension scheme as a whole, to help meet the costs of scheme management and to restrict future deficits.

Thus a payment of 2.7% of the chief executive’s salary went directly to him, rather than into the pension fund for the benefit of all members. The Wales Audit Office report says (paragraph 55) that “there would be some additional cost to the Council, as a future actuarial assessment would be based on fund assets that had not received the additional contributions”.

One of the main excuses for the ‘pay supplement scheme’ was that it would not cost the council a penny extra, but as applied in Pembrokeshire it diverted much-needed money away from the fund, the Dyfed Superannuation Scheme.  This scheme, which is administered by Carmarthenshire County Council,  had 38,341 members as at March 31st 2012 — 17,569 making contributions, 11,365 with deferred pensions, and just 9,407 receiving pensions. The pension fund was not looking too healthy when the chief executives of Pembrokeshire and Carmarthenshire, and another unnamed officer in Pembrokeshire, were walking away. At March 31st 2013 the present values of  its liabilities were £492.63 million, but the fair value of its assets was just £369.15 million, according to figures published in Pembrokeshire County Council’s financial statements for 2012-13. Many thousands of past, present and future local government employees will rely on this fund for a reasonable standard of living in retirement.

The fund will need to receive substantial excesses of inflows and investment gains over pension payments out during the next several years. Given the heavy pressure on local authorities to cut spending and say goodbye to staff, and the end of rapid economic growth, from whom are those financial inflows to come? The problem is not unique to Dyfed — local government pension funds all over the UK face similar pressures.

Pat Dodd Racher

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