Pensions Regulator statement on employer related investments

The Pensions Regulator has set out its expectations of trustees, employers and advisers involved in making pension scheme investment decisions.

Under laws governing employer related investments (ERI) not more than 5% of the current value of scheme assets may be invested in ERI (subject to certain specific exceptions). In addition, some ERI is absolutely prohibited, including an employer related loan or guarantee.

This statement follows recent amendments to legislation which removed an exemption for collective investments such as unit trusts and other pooled investment vehicles.

It also addresses the potential risks involved in some of the more innovative funding mechanisms being employed to fund defined benefit (DB) schemes.

ERI can be a risk in both DB and defined contribution (DC) schemes. In order to assist those involved in the investment of pension scheme assets, the regulator has set out a summary of its approach to regulating this area.

Feargus Mitchell, pensions advisory partner at Deloitte, said: “We welcome the statement made by the Pensions Regulator on employer related investments (ERI). This guidance is helpful for both corporates and pension trustees who are involved in scheme funding negotiations and investment decisions.

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