Amendments to the 2005 Investment Regulations came into force on 23 September 2010. Schemes are allowed to invest up to five per cent of their resources in employer-related investments. The amendments remove most of the exemptions to the five per cent limit. The changes are required to bring UK law in line with the European IORP Directive. The key changes are the revocation of:

  • The exemption for collective investment schemes;
  • Exemptions for qualifying insurance policies; and
  • The transitional provisions which allowed certain schemes to retain employer-related investments held in April 1997 in excess of the five per cent limit.

Trustees should take urgent steps to ensure that they do not hold any employer-related investments, including insurance policies with a scheme employer (or a company associated with an employer), in excess of the five per cent limit. Breaches of the self-investment rules by trustees can give rise to criminal penalties.

Particular concern has been raised in relation to the removal of the exemption for collective investment schemes. Trustees who have holdings in collective investments (including unit trusts and other pooled vehicles) should now be taking steps to monitor the underlying investments of those holdings to ensure they do not breach the five per cent self-investment limit. We understand that the Regulator and the DWP are working on guidance to trustees on the monitoring of employer-related investments.