21 February 2024
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Ombudsman finds professional trustee of SSAS in breach of investment duty

To The Point
(5 min read)

The Pensions Ombudsman has upheld a complaint against a professional trustee of a SSAS for its failure to consider whether an investment in Cape Verde hotel accommodation was appropriate.  The complaint was brought by a member who was himself a trustee of the SSAS, but this did not prevent the member substantially succeeding in his claim.  The Ombudsman apportioned liability 80% to the professional trustee and 20% to the member trustee.  In this article we take a look at the implications of the Ombudsman's decision and give our thoughts on the case.

The Pensions Ombudsman has upheld a complaint against a professional trustee of a SSAS for its failure to consider whether an investment in Cape Verde hotel accommodation was appropriate (Mr N PO-25984).


Mr N was advised by an unregulated firm to invest in hotel accommodation in Cape Verde.  In connection with this, Mr N was introduced to a company (R) that provided SSAS services.  Mr S completed an application to establish a SSAS of which he would be the only member.  The SSAS was established by an interim deed dated 16 January 2014 which appointed RTL, a subsidiary of R, as its first trustee.  A subsequent deed dated 5 February 2014 appointed Mr N as a Member Trustee and adopted definitive documentation.

On 17 January 2014, R wrote to Mr N regarding his proposed investment saying that it understood he wished to invest in a fractional ownership certificate relating to property in Cape Verde.  R said that it could not advise on the suitability of the proposed investment and that "As with all complex investments" it advised Mr N to take appropriate legal and other professional advice in the matter.  It said that R excluded "to the maximum extent permissible by law" all liability in connection with Mr N's proposed purchase of the investment.  The Ombudsman said it was not clear to him whether this letter was written by R in its capacity as administrator of the SSAS, RTL's role as independent trustee or all aspects of R's involvement.  On 31 January 2014 Mr N signed an acknowledgement saying that he understood there were risks inherent in the proposed investment and that R would not be liable.  He confirmed he did not wish to appoint legal advisers.  Mr N subsequently wrote to R to say that he wished to invest £62,500 of his SSAS fund in the Cape Verde investment opportunity.  On 21 February 2014 Mr N signed an agreement to effect the relevant investment.

In 2018 Mr N wrote to R to complain about his investment.  He said that based on his experience of the previous four years, the promise of yearly income had fallen far short of guarantees and expectations, largely due to the high fees of R and another company connected with the investment.  Mr N said that he had been unsuccessful in trying to sell his investment.  Mr N questioned whether R had acted with due diligence in assessing whether the investment was suitable.

Ombudsman's decision

The Ombudsman upheld the complaint against RTL in its capacity as independent trustee of the SSAS, though he did not uphold the complaint against R in its capacity as administrator.

The Ombudsman noted that the SSAS's trust deed and rules (TDR) did not limit RTL's obligations by establishing it as a bare trustee or attempting to ensure that it only followed member directions in relation to investment.  The SSAS's power of investment was granted to the Trustees, a definition which included the independent trustees as well as the Member Trustee. Trustee meetings had to include the independent trustee to be quorate and required decisions to be unanimous.  The TDR said that no investment could be made without the prior written agreement of the members.  However, that provided the member with a right to veto the Trustees' decision rather than obliging the Trustees to follow member investment instructions.

The Ombudsman found that in practice the role that RTL had assumed had been much more limited than that provided for under the TDR.  There was no evidence that RTL had obtained "proper advice" on the investment as required by section 36 of the Pensions Act 1995 (PA95).  Section 33 of the PA95 prevented the trustee of an occupational pension scheme from excluding or restricting the trustee's duty to take care in the performance of any investment function.  The Ombudsman also noted that a trustee has a duty to have regard to the need for diversification of investments, both as a result of the Occupational Pension Schemes (Investment) Regulations 2005 and the more general duty of care applicable to trustees making investment decisions.  He said that there was no evidence that RTL had considered the need for diversification.  

The Ombudsman considered that RTL should have taken legal advice in relation to the investment.  It appeared that RTL and the Member Trustee had agreed to pay £62,500 in exchange for an undertaking from a Cape Verde company to procure an unrelated organisation to provide evidence of the Trustees' membership of a hotel company at a future date.  The Trustees appeared not to have obtained any evidence of their membership of the hotel company or that the hotel company actually held title to the relevant hotel development.

The Ombudsman noted the investment held by the scheme was an Unregulated Collective Investment Scheme (UCIS) and that prior to the SSAS making its investment, the FCA had warned SIPP operators that UCIS were high risk, speculative investments which were unlikely to be suitable for the vast majority of retail customers.  Whilst RTL was not regulated by the FCA, the Ombudsman noted that five of RTL's directors were also directors of a group company which was the FCA-regulated administrator of a SIPP.  This meant RTL should have had a good working knowledge of FCA concerns and guidance at the time.

Apportioning liability between trustees

The Ombudsman noted that the starting point under trusts law is that the trustees are jointly and severally liable for any loss.  However, he concluded that under the Civil Liability (Contribution) Act 1978 he could make an order apportioning liability as between trustees.  He accordingly apportioned liability for the loss 80% to RTL and 20% to Mr N as Member Trustee.  The Ombudsman said that the courts have held that professional trustees "owe a duty to explain the ins-and-outs of trusteeship to less well-informed lay trustees".  The Ombudsman ordered that Mr N's loss should be calculated by reference to the value that his pension funds would have had if he had left them with his previous pension providers (invested in the same funds that they had been invested in prior to transfer out) rather than transferring them to the SSAS.  He also ordered RTL to pay Mr N £1000 for the distress and inconvenience he had suffered as a result of RTL's failure to discharge its duties as co-trustee in relation to the selection of suitable investments.

Our thoughts

This case shows that where a scheme's governing documentation gives a professional SSAS trustee a decision-making role in relation to the selection of investments (which it usually will), the professional trustee is required to take an active role in decision-making rather than simply giving effect to whatever choices the member trustees make. 

It is unsurprising that the professional trustee's failure to ensure compliance with the s.36 PA95 requirement for investment advice attracted Ombudsman sanction. This is not a new requirement, having existed ever since the Pension Act 1995 came into force, however we often come across cases where this requirement is ignored by SSAS trustees, and this decision reinforces the exposure of SSAS trustees who fail to ensure legally required investment advice is obtained.

The case also shows that where the Ombudsman upholds a claim against a group of trustees including both a professional trustee and member trustees, he may apportion most or all of the liability to the professional trustee.  It appears from the determination that the Cape Verde investment may have had zero value.  It is not clear how the Ombudsman would approach a less extreme case eg where a professional trustee, at the member trustees' request, allows almost all of the fund to be invested in a commercial property where the investment clearly does have a value but carries risks inherent in lack of diversity and liquidity.

Most of the Ombudsman's reasoning and conclusions are unsurprising on the facts. However the one arguably controversial part of the decision is the Ombudsman's comment that a professional SSAS trustee "owes a duty" to the member trustee to explain "the ins-and-outs of trusteeship". In our view, that goes too far. Whilst case law is clear that professional trustees owe greater duties and can be judged to a higher standard than lay trustees, that is very different to saying that professional trustees have a legal duty – by virtue of their trusteeship – to provide legal advice to member trustees on the scope of their own legal duties, which is the implication from the Ombudsman's reasoning. 

Clearly if a course of action was being discussed which a professional trustee knew or ought to know would be unlawful, then it would be incumbent on them to say as much to the other trustees. If that wasn't enough to dissuade the member trustee, it may be necessary to seek legal advice. But that is very different to there being a positive duty on a professional trustee to advise member trustees on their legal duties (unless that was part of a professional trustee's agreed scope of services). 

Here RTL was found culpable because it was too passive and failed to positively carry out its own trustee duties, and in that context one can understand why the Ombudsman was critical of that passivity and considered that RTL should have warned the member trustee of the dangers of proceeding with the investment. But ultimately professional trustees are not lawyers, and it has certainly never been understood by the SSAS industry that professional trustees have " a duty to educate" or "a duty to advise" member trustees. Of course, the line between "warning" and "advising" may be quite fine. But our view is that this aspect of the Ombudsman's decision is controversial, and the Ombudsman didn't need to make a finding to that effect in order to still reach the decisions that it did on how to apportion liability as between RTL and the member trustee.

To the Point 

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