On 31 March, following a prosecution brought by The Pensions Regulator (TPR), the former owner of Norton Motorcycles, Stuart Garner, was given a suspended sentence of eight months’ imprisonment for breaching the employment-related investment (ERI) rules in relation to the Norton Motorcycles pension schemes, of which he was the sole trustee. In addition, Garner was disqualified from acting as a company director for three years and ordered to pay TPR’s costs, amounting to approximately £20,716.
Section 40 of the Pensions Act 1995 and associated regulations restricts the extent to which trustees of an occupational defined benefit pension scheme may make investments connected with any employer that sponsors or participates in the scheme as follows:
- ERI investments are restricted to 5% of the current market value of the scheme’s assets;
- investments in employer-related loans are prohibited; and
- investments which constitute transactions at an undervalue are prohibited.
An estimated £11 million, comprising most of the money in the three pension schemes, was invested into the Norton business. These investments were made between 2012 and 2013, with 227 people pledging money in return for preference shares issued by Norton Motorcycle Holdings Ltd, of which Garner was the director and majority shareholder. Approximately £1.5 million has been paid back, with insolvency practitioners now investigating whether any more money can be returned following the eventual liquidation of the company.
The criminal sanction imposed on Garner, as trustee, is a clear indication of TPR’s increasing keenness to use its legislative powers to police criminality in the management of pension funds and something to be aware of in light of its new criminal powers under the Pension Schemes Act 2021. It is also an important reminder for any trustees of the restrictions on investments (including the 5% ERI cap if there are any such investments, although it is most prudent not to rely on the cap).