The Pensions Regulator (TPR) in the UK has reminded pension fund trustees and employers of the restrictions on using pension scheme funds for employer related investments (ERI) and the risk of criminal prosecution as it published new guidance.

The guidance makes clear that, aside from certain exceptions, no more than 5% of the current market value of pension scheme assets may, at any time, be invested in employer related investments, and no assets may be loaned to the employer.

Breaches of these rules are a criminal offence, TPR stated.

Recent examples where trustees have been prosecuted by TPR include a case against the former owner of Norton Motorcycles, Stuart Garner, who in March last year was handed a suspended prison sentence for illegally investing money from pension schemes where he acted as a trustee into his Norton Motorcycles business.

And in November last year, two former pension scheme trustees received suspended prison sentences for making illegal loans of £236,000 from a company pension scheme to the scheme’s employer.

Erica Carroll, director of enforcement at TPR, said: “Trustees should be in no doubt that where we see savers’ funds being illegally invested, we will take firm action, which could result in a prison term.”

She added that to continue to educate trustees about their ERI duties, TPR’s new guidance “clearly sets out the restrictions and the responsibilities that apply and so I urge all those involved in running pension schemes to read it, understand it and apply it”.

The guidance warns trustees, employers and scheme advisers they must report ERI breaches to TPR. They must disclose details of any ERI – whether permitted or in breach – in the scheme’s annual report, together with details of how and when any breach will be remedied.

And any scheme resources which have been invested in breach of ERI restrictions must be excluded from the calculation of the scheme’s assets for the purposes of a valuation.

The guidance also notes that trustees that breach ERI restrictions can be fined up to £5,000 for individual trustees or £50,000 for corporate trustees, or imprisonment, or both.

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