It is estimated that the German Property Group, formerly the Dolphin Trust, has taken £600 million in pension investments from UK customers with no returns forthcoming – and customers may soon be entitled to compensation.
If you have a SIPP (a self-invested personal pension), you have the freedom to decide where to invest it. Rather than being tied into a specific portfolio, you can (within reason) do what you think is best with your pension fund in order to get the best returns.
And one of those options may be the promise to seriously increase your money if you invest in German property redevelopment. But these offers aren’t always what they seem.
The Dolphin Trust/Germany Property Group
The Germany Property Group is an unregulated property investment scheme. That means that it’s a scheme you can choose to invest your pension fund in but, as it is unregulated, you are doing so at your own risk.
The idea was that property investments in Germany were advertised as good value – the property was being bought cheap and refurbished or rebuilt to be converted into contemporary accommodation which could then be sold at a high price, including enough profit to pay a handsome return to investors.
The German government has offered generous tax incentives to residents who wanted to develop listed buildings following the fall of the Berlin wall, so there is definitely money to be made when invested and used correctly.
Pension Scams: The Dolphin Trust
The scheme was set up as The Dolphin Trust in 2008 and became very popular a few years later. Indeed, much of the UK’s investment with the company happened around 2013/2014, where a number of pension providers were recommending them as an investment opportunity for anyone with a SIPP.
Lifetime, Rowanmoor, Guinness Mahon and Berkeley Burke are just some of the named pension providers who sold the investment as an asset.
The promises made to investors were that their money would significantly grow, and in some cases potentially double, provided they invested for five years.
However, investigations into the company were carried out in 2018 and 2019 following complaints that money wasn’t being repaid.
Some people were getting their original investment amount back but with no interest payment. Others were getting nothing back at all. It was then uncovered that the company hadn’t filed any annual accounts since 2014 and that there was huge uncertainty over where the cash was, and whether it was all tied up in the property.
If it was, and the company was to go bust, chances are the property would only be sold for a fraction of its value and so the money would be difficult to recover.
SIPP Providers That Recommended These Investments
Of course, the SIPP providers that recommended these investments weren’t left short of their money – they would have received their sizeable commission costs (believed to be 20%) when the investments were first made, and so their willingness to chase up the returns on your behalf is limited.
Also, customers who invested were promised that their money would be safe due to the ‘First Legal Charge’. This is a binding document in an investment where, if a property investment company fails to repay the money, the investor can force the sale of the property in order to get their money back.
Yet none of the UK customers who spoke to the BBC as part of their investigation had received a First Legal Charge document, nor did they have any details for the specific property they had invested in. Indeed further investigation shows that as many as four charges may have been granted on a single development with the scheme, effectively quartering their value and rendering them useless.
The scheme hasn’t gone completely quiet, and indeed the German Property Group has responded to these allegations. They’ve said that only a small percentage of investors have been affected by the issues they’ve suffered, and they’ve blamed various factors, including construction delays.
They say, of the 60 properties in development, only ten have suffered setbacks and investors in the remaining 50 will be repaid on time.
The Future of German Property Investment
It should go without saying, based on the example proven by the German Property Group, but you should be extremely wary of investing in German property – or indeed any unregulated asset – when it comes to your pension.
A SIPP is a complex financial product that is not suited to everyone. You need to be financially savvy if you want to take advantage of the flexibility it offers, as if you become complacent, you could quickly lose all your money.
Don’t opt for a SIPP if you aren’t comfortable with pensions and investments generally. You will, of course, get financial advice from an advisor but it is best to make sure you have some understanding of where your money is going.
German Property Complex Investment Schemes
Their complexity also means they are easy targets for scams and less-than-favourable schemes. Salesmen and advisors can identify people with large pension funds and less financial knowledge, often dazzling them with claims of huge returns when, in reality, their money may not be as secure as they are promised.
So when a SIPP is offered the chance to invest in German property with huge returns, a customer may believe they have a fantastic deal on their hands when the reality could be very different.
That’s not to say all German property investment is a bad idea. The tax break from the government has provided an excellent opportunity for German residents to redevelop the property, and they will need investment. But you need to be extremely careful who you deal with. The customers of the German Property Group may yet get their promised returns, but it is looking decreasingly likely.
You would need to ensure you’ve sought the proper, legal, financial advice before joining any investment scheme, as only a legitimate financial advisor can tell you whether a scheme looks like a solid investment, once they’ve examined all the details, or if it looks too good to be true.
What to Do if You’ve Lost Money in an Investment
If you’ve invested in the German Property Group or any other property investment scheme in Germany and you’re worried about losing your money, you don’t need to lose all hope. .
The FSCS does not cover unregulated assets directly, but if you sought proper financial advice and invested through a SIPP provider, then you may be able to seek help through the Financial Ombudsman Service and ultimately the FSCS.
You may not be able to get all of your money back, but you should be able to reclaim some of it at least. At the very least, speak to a professional who can look at your case and determine whether you have a right to apply for compensation, or whether it is worth targeting the asset directly to try and force a sale to recover your original investment.
Can You Claim Compensation if Your Pension Funds Were Invested in Inappropriate Assets?
Yes. Unfortunately, many people still believe that if they agree to the advice proposed by their financial adviser, then they are responsible for the consequences. This may be true if transactions are completed on an execution only basis but not if advice is given. If the advice turns out to be inappropriate for the individual, then you may well have recourse for compensation.
