Stick to the rules on scheme loans or risk enforcement action, TPR warns trustees

Pension trustees were warned today they face large fines or even jail if they flout investment rules designed to protect savers.

The alert comes as The Pensions Regulator (TPR) today published a report into its action against two former trustees of the Worthington Employee Pension Top-Up Scheme who broke employer-related investment (ERI) rules.

The report details how Stephen Smith, of Broughton-in-Furness, was handed a suspended jail term 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.

Case history

TPR launched an investigation in 2019 after receiving a breach of law report and uncovered prohibited employer-related loans, including three totalling around £400,000 to Stonewell Property Company Limited, the parent company of the scheme's sponsoring employer.

Following its investigation, TPR pursued a criminal prosecution against Mr Smith. On 19 October 2022, at Preston Magistrates' Court, Mr Smith pleaded guilty to making five prohibited loans.

In January 2024, at Burnley Crown Court, Mr Smith was given a 10-month prison sentence, suspended for 12 months, and ordered to complete 150 hours of community service and pay £1,000 in prosecution costs.

Although it considered prosecuting Mr Worthington, his personal circumstances led TPR to conclude the public interest test for prosecution was not met and instead opened a regulatory case against him.

In January 2023, TPR's independent Determinations Panel determined that Mr Worthington should pay a total penalty of £29,000 for six ERI breaches.

Ultimately, all scheme funds were lost because the loans were converted into a failed investment.

In March, TPR appointed an independent trustee to the scheme. If the scheme is eligible, the independent trustee will be able to pursue a claim from the Fraud Compensation Fund on behalf of members.

Contact Information

TPR Press Office
pressoffice@tpr.gov.uk

Notes to editors

• Making a prohibited employer-related investment can lead to a two-year jail sentence or a fine of up to £50,000. Employer-related loans are absolutely prohibited. 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. Breaches of these rules are a criminal offence.
• About the 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.
• The Pensions Regulator is the regulator of work-based pension schemes in the UK. Our statutory objectives are to:
  • protect members' benefits
  • reduce the risk of calls on the Pension Protection Fund
  • promote, and improve understanding of, the good administration of work-based pension schemes
  • maximise employer compliance with automatic enrolment duties
  • minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator's functions under Part 3 of the Pensions Act 2004 only)