(2 min read)
We take a look at a recent Pensions Ombudsman determination which will be of particular interest to professional trustees and administrators of small self-administered pension schemes (SSASs). The Ombudsman upheld a complaint where the professional trustee and administrator had allowed a large proportion of the SSAS's total cash to be paid out as a death benefit, leaving the existing member with a fund comprised largely of illiquid assets. The Ombudsman held that the cash should not have been paid out of the scheme without a formal trustee resolution regarding the apportionment of SSAS assets. We consider what lessons SSAS trustees and administrators can learn from the decision.
The Deputy Pensions Ombudsman (DPO) has upheld a complaint where the administrator and professional trustee of a SSAS allowed a disproportionate share of a SSAS’s cash reserves to be used to pay a lump sum death benefit without this being duly authorised by all the trustees (CAS-45657-B7R7). Once the lump sum death benefit had been paid, the member fund of the SSAS’s remaining member, Mr R, was disproportionately comprised of non-cash assets including illiquid assets and some investments in relation to which trading had been suspended. This was a particular issue for Mr R as he wished to take a transfer value to a different scheme.
Mr R, in his capacity as trustee, had signed a trustee resolution resolving that the deceased member’s fund value should be allocated to his widow. However, Mr R was not consulted on the apportionment of the SSAS’s assets. The DPO found that the apportionment of the SSAS’s assets necessitated by the payment of death benefits and Mr R’s desire to take a transfer value was a material issue requiring a trustee decision. As the SSAS rules required trustee decisions to be unanimous, there was no effective decision to allocate the liquid assets to the deceased member’s fund prior to paying the death benefit to his widow. Apportionment of the SSAS assets without a unanimous trustee resolution amounted to a breach of trust by the professional trustee and a breach of its duty to exercise care and skill in its capacity as administrator, as the administrator was required to ensure that payments were not made unless duly authorised. The DPO also found that even the resolution which Mr R had signed was not a valid resolution, as it had not been signed by the professional trustee and the scheme rules required written resolutions to be signed by all the trustees. The professional trustee had drafted the resolution in question and acted on it, but the requirement under the rules was that a written resolution had to be signed by all trustees, and the DPO found that without a signature from the professional trustee, the resolution was not valid.
The DPO also found that there had been considerable maladministration relating to the ongoing administration of the SSAS before and after payment of the lump sum death benefit. This included delays in responding to queries, and issues with record-keeping an ensuring correct registration of shares owned by the SSAS. The DPO concluded that the professional trustee had failed to provide a proper service either as a professional trustee or as scheme administrator, and that its own fees and charges in respect of the period after the payment of the lump sum death benefit should therefore be subject to a 100% discount.
The DPO ordered the professional trustee to pay Mr R:
- an amount equal to 50% of any diminution of his member’s fund in respect of the performance of his investment portfolio after the date of payment of the lump sum death benefit;
- an amount equal to all fees and charges deducted from the fund in respect of professional trustee or scheme administrator services from the date of payment of the lump sum death benefit; and
- £2000 for distress and inconvenience.
Our thoughts
This decision highlights the issues that can arise when a substantial proportion of a SSAS’s assets are held in illiquid investments and there are competing demands for cash from members/other beneficiaries. Where a proposed payment from a SSAS will substantially alter the balance of cash and non-cash assets held within a SSAS, professional trustees and scheme administrators should be alert to the potential need for a formal trustee decision about asset allocation rather than allowing large cash payments to be made on a “first come, first served” basis without regard to the interests of the remaining members/beneficiaries.
Another lesson from this decision is the importance of adhering strictly to any formality requirements in the scheme rules. In this case the professional trustee had drafted and acted on the trustee resolution, so considered it obvious it had “approved” it. However, the scheme rules specified that written resolutions had to be signed by all trustees. Without a signature from the professional trustee, the resolution was not valid.
