NAPF seeks clarity over 5% sponsor investment limit penalties
Trustees and administrators could face unlimited fines or up to two years in prison for breaching new sponsor investment rules, according to the National Association of Pension Funds (NAPF)
Joanne Segars, chief executive of the NAPF, has written to Steve Webb , pensions minister, to ask that UK regulations implementing the decision be delayed until further clarity is agreed.
As schemeXpert.com reported earlier this month, the regulations follow from rules that bar pension schemes from investing more than 5% of total assets in the employer . The rules have been amended to remove a previous exemption for investments in the employer held through pooled funds such as investment and unit trusts.
The NAPF noted that trustees are not always aware of every share held in a unit trust managed by an independent firm and, while acknowledging that the risks of a breach are small, said trustees fear the severe penalties.
“Investors in pooled funds are unable to monitor their indirect holdings through pooled funds in a timely way or with any certainty,” Segars wrote. “Nor are their custodians able to do so.”
The Department for Work and Pensions said it has been made clear that the Pensions Regulator will not pursue trustees for what are clearly inadvertent breaches.
But Segars said trustees are not likely to be satisfied with such a loose arrangement. “Ultimately, people want to know it won’t be just a nod and a wink from the regulator,” she wrote. Segars acknowledged that although it is planned that the regulator will provide guidance by the end of October, trustees are unlikely to be satisfied by a non-binding statement.
Ironically, Segars noted, the UK had such a ban in place before the European directive. It was put in place in the Pensions Act of 1995 after the disappearance of more than £300m from schemes controlled by the late Robert Maxwell.
In that case, it emerged that hundreds of millions of pounds were diverted from the scheme and used to buy shares in which Maxwell or his companies had interests.
There had been concerns that companies finding themselves on the brink of collapse could turn to their pension schemes to arrange a life-saving loan. But if the loan did not rescue the company as planned, the scheme would be wound up with an even bigger shortfall than before.