Investments: shares and equities
Registered pension schemes may invest in equities regardless of whether or not they are quoted on a recognised stock exchange and regardless of whether the company is a UK company or an overseas company.
Limits on shares in sponsoring employer companies
Section 180(5) Finance Act 2004
There are restrictions on the amounts which will qualify as scheme administration employer payment when a registered pension scheme invests in shares of a sponsoring employer.
Payments by a registered pension scheme for shares in a sponsoring employer will qualify as scheme administration employer payments, providing that at the time the payment is made the market value of the shares is less than 5% of the total of the cash sums and the market value of the net assets held for the purpose of the pension scheme.
The scheme may acquire shares of more than one sponsoring employer of the scheme providing that at the time the payment is made the market value of the shares is less than 20% of the total of the sums and the market value of the assets held for the purpose of the pension scheme. The shares in any one sponsoring employer of the scheme should be less than 5%.
The market value is tested at the time the payment is made for the shares and will not be re-tested at a later date, for example if the scheme assets lose their value, unless new shares in the sponsoring employer are acquired.
There are no restrictions with regard to the percentage of shares which can be held in one company (for example a registered pension scheme could potentially own 100% of the share capital of a company) providing that the sums invested are less than 5% of the fund value mentioned above.
Where the 5% or 20% limits are exceeded, the amount will be subject to an unauthorised payments charge on the employer (see PTM121000). The scheme will also be subject to a scheme sanction charge (see PTM121000).
Shares held in sponsoring employer companies before 6 April 2006
Where a registered pension scheme already holds shares in a sponsoring employer prior to 6 April 2006 the shares may continue to be held. If however, the scheme purchases shares in a sponsoring employer after 6 April 2006 the 5% limit will apply and the total holding of shares including the value of the shares held prior to 6 April 2006 will have to be taken into account.
Shares and value shifting
It is possible to pass value from the scheme without making any payments as such. This is known as value shifting. Probably the simplest example is any change to the rights attached to shares.
Value shifting can also take place in respect of other types of transactions - see PTM133700 for examples and further guidance about value shifting.