Pensions self investment limit tightened

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24 September 2010

Securities issued by the sponsoring employer that a pension scheme holds through a collective
investment scheme now count towards the 5% limit on "employer-related investment".

Securities issued by the sponsoring employer that a pension scheme holds through a collective
investment scheme now count towards the 5% limit on "employer-related investment". In the past
they did not.


A number of other categories of investment previously outside the 5% limit have also been brought
within it. For example, AVCs invested in the employer with the member's written agreement.


These changes have been made to align UK law with EU requirements with effect from the 23
September 2010 deadline imposed by the EU pensions directive. The government issued
amending regulations shortly before the deadline.


In the past, securities issued by the sponsoring employer or by group entities "associated or
connected" with it that were held through a collective investment scheme (CIS) did not count
towards the 5% limit if the CIS met certain criteria. Broadly, the CIS had to be run by an authorised
person, have at least 10 participants and account for no more than 10% of the pension scheme's
assets. Unit trusts and OEICs are examples of collective investment schemes.


Trustees who think they might be affected by the change should contact their CIS operator for
information about its current holdings.


In future, trustees will need to make arrangements to monitor their indirect holdings more closely.
This might not be straightforward.


The Pensions Regulator and the DWP are working on guidance which, it is hoped, will comfort
trustees that they will not face sanctions for technical breaches of the limit.

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