Who this guidance is for
This guidance is for trustees, employers and advisers involved in decisions about their scheme’s investment decisions. It’s important information to help avoid the risk of breaching employer related investment (ERI) restrictions.
ERIs
As defined in section 40 of the Pensions Act 1995 (legislation.gov.uk), ERIs are:
- shares or other securities issued by the scheme employer or by any person who is connected with, or an associate of, the employer
- land, which is occupied, used by or subject to a lease in favour of the employer or any such person
- property (other than land) which is used for the purposes of any business carried out by the employer or any such person
- loans to the employer or any such person
- other prescribed investments as set out in The Occupational Pension Schemes (Investment) Regulations 2005 (legislation.gov.uk).
ERI restrictions
Aside from certain exceptions, not more than 5% of the current market value of pension scheme assets may at any time be invested in employer related investments.
Some types of ERI are absolutely prohibited. These include employer-related loans or guarantees and ERI transactions at an undervalue. For more information about this, see Occupational Pensions Schemes (Investment) Regulations 2005, Regulation 12 (legislation.gov.uk).
Consequences of breaching ERI rules
Trustees who breach ERI restrictions can be fined up to £5,000 for individual trustees or £50,000 (for corporate trustees), or imprisonment, or both.
When considering which enforcement action to take in respect of ERI breaches, we consider the principles set out in our scheme management enforcement policy, overlapping powers chapter.
Small schemes
'Small schemes' as defined in Regulation 1(2) of the Occupational Pension Schemes (Investment) Regulations 2005 are exempt from the restrictions on employer related investments.
This is a very specific class of scheme. It’s important trustees and employers are clear whether their scheme is a 'small scheme' in order to be exempt from ERI restrictions.
Employers and trustees should take advice if they are uncertain if the exemption applies.
Additional responsibilities
- Trustees, employers and scheme advisers must report ERI breaches to TPR. More information can be found in our code of practice modules on reporting breaches.
- Trustees 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. More information on this can be found in the disclosure of information regulations.
- 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. More information can be found in the Occupational Pension Schemes (Scheme Funding) Regulations 2005 (legislation.gov.uk).
Recent cases
Read more about our enforcement cases showing how we’ve used our powers in respect of ERI breaches.
Focusplay Retirement Benefits Scheme - Regulatory intervention report
Project Sean (National Archives)
Former Norton Motorcycles owner handed suspended jail sentence for pensions crimes
Eastman Machine Company Limited Superannuation Scheme - Regulatory intervention report