RPSM07103060 - Technical Pages: Investments: Loans: Loans to employers: Security

Security

If a registered pension scheme makes a loan to an employer the amount of the loan must be secured throughout the full term as a first charge on any asset either owned by the sponsoring employer, or some other person, which is of at least equal value to the face value of the loan including interest.

There must be no other charge on the asset that takes priority over the charge made by the scheme.

If the asset used as security is replaced by another asset, the value of the replacement must be at least equal to the lower of

• the market value of the asset it has replaced, or
• the amount of loan outstanding (including interest)

at the time the security is replaced.

If the security replaced is not equal to the lower of the amounts in 1 or 2 above an unauthorised payments charge will apply which is equal to the difference between the old security and the new.

Taxable property used as security

If the asset used as security is taxable property then there may be additional tax charges under the taxable property provisions if the registered pension scheme is an investment regulated pension scheme.

Further guidance on the tax charges that could apply is at RPSM07109255.

For an explanation of what an investment regulated pension scheme is see RPSM07109050.

For guidance on what is taxable property see RPSM07109020.