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Former pension scheme trustee handed suspended jail term for illegal pension loans

Ref: PN24-01

Issued: Thursday 4 January 2024

A former pension scheme trustee has been given a 10-month jail term, suspended for 12 months, after admitting using scheme funds to make five prohibited loans to entities connected to the scheme’s sponsoring employer.

Stephen Smith, 64, of Broughton-in-Furness, Cumbria, a former trustee of the Worthington Employee Pension Top-Up Scheme (WEPTUS) and finance director of the employer, received the sentence at Burnley Crown Court today (Thursday) following a prosecution by The Pensions Regulator (TPR).

Presiding, His Honour Judge Unsworth KC told Smith he would also have to complete 150 hours of unpaid work in the community and pay £1,000 in prosecution costs.

HHJ Unsworth said: “Any mismanagement of pension schemes has the potential to cause real harm to people, many of whom will have sought to rely on those investments to keep them in later life. Mismanagement of schemes undermines public trust in the pension system in general”.

Smith had pleaded guilty to making five prohibited loans totalling around £700,000 at an earlier court appearance.

The court heard Smith had played a central role in running the scheme but had failed to act in the best interests of its beneficiaries or with impartiality and was negligent in the performance of his trustee duties.

Ultimately all scheme monies were lost as the loans were converted into another employer-related investment which failed, although Smith was not a trustee at the time of the failed investment.

Nicola Parish, TPR’s Executive Director of Frontline Regulation, said: “Rules restricting trustees from lending scheme money to a sponsoring employer are there to safeguard workers’ pension pots.

“Smith chose to flout these rules and, as this prosecution shows, we will take tough action to punish those who risk the pension funds they are entrusted to look after.”

Notes for editors

  • About the scheme: Worthington Employee Pension Top Up Scheme is a money purchase trust-based occupational scheme established in 2006. 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. MCW’s parent company is Stonewell.
  • About the prohibited loans: TPR’s investigation uncovered prohibited employer-related loans by the scheme, including three totalling around £400,000 to Stonewell Property Company Limited, the parent company of the scheme’s sponsoring employer, Marcus Worthington and Company Ltd (MWC). Based in Lancashire both companies were part of the now-dissolved Marcus Worthington Group. Two other loans, totalling around £540,000, had been made from the scheme to Brockholes Pavilion Trust Fund – a trust-based occupational scheme established in 1986 for the benefit of Worthington family members. The loans were repaid, albeit erratically. Loans from a scheme to a person connected or associated with the scheme’s employer are prohibited by Section 40 of the Pensions Act 1995 and the Occupational Pension Schemes (Investment) Regulations 2005. Breach of Section 40 is a criminal offence and can potentially lead to an unlimited fine and/or imprisonment.
  • TPR has published guidance relating to employer related investments (ERIs) to help trustees, advisers and employers avoid the risk of breaching ERI restrictions.
  • TPR is the regulator of workplace trust-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 to 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)

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