Enforcement alert: TPR’s crackdown on pension scheme loans and employer-related investments

A recent press release from The Pensions Regulator (TPR) underscores the regulator's commitment to enforcing compliance with the rules governing scheme loans and employer-related investments (ERIs). Trustees must be vigilant to avoid potential enforcement actions.  And where the pension trustees are also directors of the employer or associated companies, they also need to pay close attention to the rules.

Understanding the regulatory framework

Under the Pensions Act 1995, trustees are absolutely prohibited from making loans to employers, except in very limited circumstances. Additionally, ERIs—investments in assets connected to the employer—are subject to stringent restrictions. Specifically, no more than 5% of the current market value of scheme assets may be invested in ERIs, and loans to the employer are generally not permitted. Breaches of these provisions can lead to criminal sanctions, including fines and imprisonment. 

For small self-administered schemes the rules are relaxed somewhat, with employer loans being allowed up to 50% of the value of the assets, but there remain strict rules on being on commercial terms, at arm's length and also with regards to duration and repayment.   

Previous examples of enforcement actions

TPR has demonstrated its commitment to upholding these rules through recent enforcement actions:

• Norton Motorcycles: In 2022 Stuart Garner, the former owner of Norton Motorcycles, received a suspended prison sentence for illegally investing money from pension schemes into his business.
• Eastman Machine: In November of the previous year, two former pension scheme trustees were handed suspended prison sentences for making illegal loans of £236,000 from a company pension scheme to the scheme’s employer.

TPR's proactive approach in identifying and addressing non-compliance has been further demonstrated in their warning issued on 14^th August 2025 following the publication of their report into the following case.

Worthington Employee Pension Top-Up Scheme

Worthington Employee Pension Top-Up Scheme is a money purchase trust-based occupational scheme established in 2006. It was set up for long-serving employees to top up other pension benefits members had accrued and, as of 31 March 2018, it had 57 members. The scheme’s sponsoring employer was Marcus Worthington and Company Ltd (MWC), which entered administration in September 2019 and was dissolved in January 2022. The firm was engaged in construction and civil engineering work and property development. MWC’s parent company is Stonewell Property Company Ltd.

TPR's report details how Stephen Smith, of Broughton-in-Furness, was handed a suspended prison sentence after admitting to using scheme funds to make five prohibited loans to entities connected to the scheme’s sponsoring employer, Marcus Worthington and Company Ltd.

TPR also took regulatory action against a second trustee, John Marcus Worthington, who was handed a £29,000 penalty under section 10 of the Pensions Act 1995.

Gaucho Rasmussen, Executive Director of Regulatory Compliance at TPR, said:

“The pensions system depends on savers having confidence that trustees act with integrity, put members’ interests first, and possess the right knowledge and skills.

“When trustees flout investment rules or fall short of expected standards, it undermines that confidence. That’s why we acted to replace them and pursued both criminal and regulatory sanctions.

“With an independent trustee now in place, the focus can shift to restoring scheme funds wherever possible.”

Trustees play a central role in pensions, and TPR has recently outlined the key traits and behaviours it expects from them, including being highly skilled and diligent.

This includes having a good technical knowledge of the requirements of the trustee role, including understanding TPR’s ERI guidance, which sets out the restrictions on using scheme funds and the risk of prosecution.

TPR expects to see a collective effort to raise standards of trusteeship and through its expanded supervisory approach would ensure all schemes meet the basics set out in its general code.

The regulator will also produce guidance on what good trusteeship looks like as part of its broader initiative to raise standards.

Implications for trustees

Trustees must exercise due diligence to ensure compliance with the legal framework governing scheme loans and ERIs. Key considerations include:

• Investment policies: Review and update investment policies to ensure they align with legal restrictions on ERIs.
• Regular audits: Conduct regular audits to identify and rectify any inadvertent breaches.
• Training and awareness: Ensure that all trustees are adequately trained and aware of their legal obligations.
• Legal advice: Seek legal advice when considering transactions that may involve ERIs or loans to employers.

Failure to adhere to these guidelines can result in significant legal and financial repercussions, including potential criminal liability.

The penalties

Making a prohibited employer-related investment can lead to a two-year prison sentence or a fine of up to £50,000. Employer-related loans are absolutely prohibited (unless an exempt small self-administered scheme). Although schemes may invest in employer-related investments, it must be no more than 5% of the current market value of the pension scheme assets (50% for exempt small self-administered schemes). Breaches of these rules are a criminal offence.

This is on top of the HMRC consequences of making unauthorised payments and the tax penalties that would be incurred, including the possible de-registration of a scheme.

Trustees, employers and scheme advisers must report ERI breaches to TPR. They 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. And 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.

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. 

Failure to make a breach of law report can also result in fine of £5,000 for individuals or £50,000 for organisations. 

Conclusion

The recent enforcement actions by TPR serve as a stark reminder of the importance of compliance with pension scheme regulations. Trustees must remain vigilant and proactive in ensuring that their schemes operate within the legal framework to protect the interests of scheme members and avoid potential enforcement actions.

For further information and guidance on navigating the complexities of pension scheme governance please get in touch with our experts below.