The Government is proposing an amendment to pensions legislation after it emerged the National Employment Savings Trust set-up loan could breach borrowing regulations.
The European Community Directive on the Activities and Supervision of Institutions for Occupational Retirement Provision, more commonly known as the IORP directive, prevents pension schemes with more than 100 members from borrowing money, apart from for temporary and liquidity purposes. The purpose of the directive is to ensure scheme members’ funds are protected from liability for any imprudent borrowing by a scheme.
However, the Department for Work and Pensions says it has discussed the requirement with the European Commission, which has indicated the intention of the legislation is not to prevent borrowing for Government-backed schemes such as Nest. Government is therefore proposing an amendment to domestic legislation which transposes the European directive.
The DWP consultation document, published yesterday, says: “To ensure that Nest Corporation will be able to borrow in order to set up the scheme, this amendment to the investment regulations makes it clear that the prohibition does not apply to the proposed borrowing by Nest Corporation.”
A DWP spokeswoman says: “Domestic legislation prohibits all borrowing by large, occupational pension schemes, save for liquidity purposes and on a temporary basis. The change that we are consulting on clarifies that the prohibition does not apply to the proposed borrowing by Nest Corporation.”