PTM123300 - Investments: loans: loans to members and connected parties

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Any loan made by a registered pension scheme to:

• a person who is, or has been, a scheme member, or
• a person/company connected with the person who is, or has been, a scheme member

will result in an unauthorised payment equal to the amount of the loan - see PTM134000. A scheme sanction charge (see PTM135000) will also be made on the scheme administrator.

Section 171(4) confirms that a loan to or in respect of a member of the pension scheme is not a scheme administration member payment and would not fall within the section 164 definition of being an authorised member payment.

A loan made by a registered pension scheme to a person/company connected with the person who is, or has been, a sponsoring employer will not result in an unauthorised payment in relation to the person who is, or has been, a sponsoring employer. This is provided the loan meets the same conditions as for loans to sponsoring employers generally (see PTM123200).

However, the loan will result in an unauthorised payment in relation to a person who is, or has been, a scheme member where the borrower is connected with that person. This would be the case regardless of the loan meeting the same conditions as for loans to sponsoring employers generally. A payment made by a registered pension scheme to or in respect of a person who is not a member/former member or sponsoring employer/former sponsoring employer but who is connected with:

• a member/former member (or was connected with a member/former member at the date of the member’s/former member’s death), or
• a sponsoring employer/former sponsoring employer

will be treated as though the payment was made in respect of the member/former member or sponsoring employer/former sponsoring employer.

For more information on connected persons see PTM027000.