Trustees and sponsoring employers of occupational pension schemes should be aware that restrictions on investments in the employer, or persons connected with the employer, may be implemented from 23 September 2010.
Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 (the IORPS Directive) requires Member States to impose a 5% limit on the amount of scheme resources an occupational pension scheme can invest in the sponsoring employer (or where there is investment in more than one group company, 10% of the scheme assets). However, the IORPS Directive also provided that Member States could postpone until 23 September 2010 the application of this requirement to occupational pension schemes (other than schemes operating on a cross-border basis).
The current Investment Regulations made under the Pensions Act contain no such restriction. In relation to defined benefit schemes, any calculation of the resources of the scheme for the purposes of meeting the funding standard must exclude investment in the sponsoring employer. However, there is no specific prohibition on investment in the sponsoring employer.
At this stage it is not clear whether the restriction will apply to direct investments only in the sponsoring employer or whether there will be a requirement to look through collective investment undertakings to the underlying investments to determine compliance with the requirements.
We understand that Regulations are currently being prepared. Once regulations have been published we will issue a further note on their implications for investment by occupational pension schemes.