How to spot a dubious investment scheme

As a result of the more flexible pensions regime, regulators are now turning their attention to dubious investment schemes. Sarah Moore reports.

As we've said on many occasions, we like chancellor George Osborne's more flexible pensions regime. An unexpected benefit is that press and regulators alike now seem to be paying more attention to various dubious types of investment scheme that have been around for a while, but are suddenly drawing attention now that there's a risk pensioners might stick their money in them, rather than an annuity.

These schemes often involve unusualassets and promise "guaranteed"double-digit incomes very temptingin an era of record-low interest rates.Judith Evans flagged up one such scheme in the Financial Times last month an investment in parking spaces at Gatwick Airport. The scheme from Park First offers the spaces for £25,000 each. The marketing material promises a "guaranteed 16% net income" in the first two years, with a "41% assured uplift". The words "guaranteed" and "assured" make it all sound safe, but as you can imagine, there are some major snags.

Firstly, to buy a space you must already own one at Glasgow Airport, costing £20,000. Secondly, there are management, service and ground rental fees. Thirdly, if you want to sell, the company will relist your space at a minimum of 25% above the purchase price but there is no guarantee that anyone will actually buy it. (This 25% is part of the "41% assured uplift".) That's a big "but", given that, as Tim Wixted of law firm Neglect Assist tells Evans, "there is no liquid market indeed, there is probably no market whatsoever for the sale of airport car parking schemes".

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Such schemes do not need to be regulated by the Financial Conduct Authority (FCA), unless they are deemed "collective investment schemes" (CIS). The good news is that a recent Court of Appeal judgement declared that two overseas land and forestry investment schemes were in fact CIS. This may see similar schemes come under the FCA's jurisdiction, which should "help to rein in the promotion of other high-risk schemes involving asset classes such as property, forestry, wine and hotel rooms", notes the FT.

Meanwhile, we'll repeat the adage if something looks too good to be true, it usually is. Benchmark government bonds in the UK and US deemed the world's "safest" assets by professional investors yield around 2% a year. Any "guaranteed" return several times higher than that should be treated with scepticism.As Laith Khalaf at Hargreaves Lansdown says: "question how guaranteed the returns are and who they're guaranteed by. If that company goes belly up, your guarantee's worth nothing".

Sarah is MoneyWeek's investment editor. She graduated from the University of Southampton with a BA in English and History, before going on to complete a graduate diploma in law at the College of Law in Guildford. She joined MoneyWeek in 2014 and writes on funds, personal finance, pensions and property.