Pension trustees have been warned they risk heavy fines and even prison time if they “flout” investment rules designed to protect savers, after The Pensions Regulator (TPR) took enforcement action against two former trustees whose actions left a scheme with no assets.
The regulator’s report details breaches at the Worthington Employee Pension Top-Up Scheme, where trustees Stephen Smith and John Marcus Worthington broke employer-related investment (ERI) rules.
Smith, of Broughton-in-Furness, admitted making five prohibited loans from scheme funds to entities linked to its sponsoring employer, Marcus Worthington and Company Ltd. Three of these loans, worth around £400,000, went to Stonewell Property Company Limited, the parent firm of the employer.
He pleaded guilty at Preston Magistrates’ Court in October 2022 and, in January this year, was given a 10-month prison sentence, suspended for 12 months, along with 150 hours of community service and £1,000 in prosecution costs.
TPR also fined fellow trustee Worthington £29,000 for six ERI breaches. Prosecutors decided on regulatory action instead of criminal charges.
All scheme assets were ultimately lost after the loans were converted into a failed investment. In March, TPR appointed an independent trustee, who will assess whether the scheme can claim from the Fraud Compensation Fund on behalf of members.
TPR stressed that trustees play a central role in protecting members’ benefits and must have strong technical knowledge, diligent oversight, and a clear grasp of its ERI guidance. The regulator is stepping up supervision to ensure all schemes meet the requirements of its new general code and will publish additional guidance on what “good” trusteeship looks like as part of its drive to raise standards.
TPR executive director of regulatory compliance Gaucho Rasmussen says: “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.”