Pension Ombudsman upholds complaint against SSAS trustee for investment decision

13 February 2024. Published by Rachael Healey, Partner

In a complaint made against Rowanmoor as administrator and trustee of a small self-administered pension scheme (SSAS) regarding investments made by the SSAS in The Resort Group, the Pension Ombudsman has rejected the complaint against the administrator but upheld the complaint against the trustee. The decision addresses the responsibilities of a pension trustee when making investments including the obligation to diversify assets and to avoid investments "attended with hazard". As the customer was also a trustee of the SSAS (which is always the case with a SSAS) the Ombudsman also considered the contributory fault of the customer, finding that the customer as trustee was responsible for 20% of the loss and in doing so putting to one side the principle that trustees are jointly and severally liable for acts as trustee.

Small Self-Administered Schemes - SSAS

Small self-administered schemes are occupational pension schemes with fewer than 12 members.  Occupational pension schemes are regulated by the Pensions Regulator and any complaints fall within the jurisdiction of the Pension Ombudsman.  All members are trustees and take responsibility for how funds are invested.  SSAS' are typically used by small family owned companies as a way to hold assets in a tax efficient way.  A SSAS is set up under a trust – and so some of the responsibilities of the trustee of the SSAS can be found in the trust deed and rules for the SSAS as well as in pension legislation.

The Complaint

The Complainant – Mr N – transferred his existing personal pensions across to a SSAS with Rowanmoor (a total of £90,535).  His decision appears to have been made following 'advice' from an unregulated firm and an FCA regulated firm.  Mr N was the only member of the SSAS and a trustee alongside Rowanmoor Trustees Limited (RTL).  Rowanmoor Group plc also acted as administrator of the SSAS.

In the application form Mr N indicated an intention to invest in The Resort Group – Cape Verde.  On the same day as he completed his application form for the SSAS, he completed and signed a Property Development Information Schedule indicating an intention to invest £62,500 in a 33% share (i.e. a fractional share) in a Dundas Beach hotel suite developed by The Resort Group. 

Following the establishment of the SSAS, Rowanmoor (and it was unclear if this was as trustee or the administrator) wrote to Mr N regarding his proposed investment in The Resort Group and said: (1) they did not advise on the suitability and risks attached to the proposed investment, (2) they could not advise on the complexities of the legal process of acquiring property in an overseas territory or in relation to contractual documentation, (3) strongly recommended Mr N obtain appropriate legal and other professional advice and (4) Rowanmoor Group excludes all liability in connection with the proposed investment or resulting from the purchase having drawn attention to the potential issues involved.  Mr N completed and signed an acknowledgment to Rowanmoor's letter confirming that he understood that there were risks inherent with the proposed investment and Rowanmoor would not be liable.  He also confirmed that he did not intend to appoint legal advisers.

The investment in The Resort Group was subsequently made in February 2014 for £62,000, with £8,000 invested in a portfolio managed by Parmenion.  Mr N complained about The Resort Group investment in June 2018 to Rowanmoor.

Rowanmoor rejected the complaint.  Rowanmoor's response appeared to focus on their role as administrator rather than their role as trustee, arguing that with regards to investments made by the SSAS it would follow the instructions of Mr N as the Member Trustee and would permit any asset provided that it did not give rise to an unauthorised payment tax charge, satisfactory title was obtained to the asset and ownership of the asset would not give rise to an unacceptable liability or risk.  Accordingly Rowanmoor rejected the complaint

The Pension Ombudsman Decision

The Pension Ombudsman's jurisdiction is different to that of the Financial Ombudsman Service – (1) the Pension Ombudsman follows the law and so applies legal principles and (2) redress before the Pension Ombudsman is uncapped.

The Ombudsman first considered the responsibilities of Rowanmoor Group plc as administrator.  Having considered the role and responsibilities set out in the Client Agreement between Mr N and both Rowanmoor entities and the trust deed and rules for the SSAS, the Ombudsman found that Rowanmoor discharged its responsibilities and so the complaint against Rowanmoor as administrator was rejected.

The Ombudsman then considered RTL's role as trustee and the decision goes into considerable detail in relation to the legal responsibilities of RTL:

  • RTL were a trustee (alongside Mr N) of the SSAS and therefore assumed a role acting as a professional trustee which brings with it added responsibilities and duties.
  • The obligations of RTL are as set out in (1) the trust deed and rules, (2) legislation and (3) case law – taking all of these into account:
    • The trust deed and rules – there was no attempt to limit RTL's obligations (for example establishing it as a bare trustee or providing that it only follows member direction in relation to investments).  Instead the investment power in the trust deed and rules rested with the Trustees (being jointly Mr N as the Member Trustee and RTL as the Independent Trustee).  Given the provisions in the trust deed and rules, the Ombudsman found that RTL shared responsibility with Mr N as Member Trustee when considering potential scheme investments and their subsequent selection if deemed suitable, and also for monitoring ongoing suitability of the investments;
    • Legislative obligations – under the Pensions Act 1995 trustees must obtain advice before making investments, it is not possible to exclude responsibility for investment decisions and there is an ongoing obligation to consider the continued suitability of investments.  Further, under the Occupational Pension Schemes (Investment) Regulations 2005 trustees must have regard to the need for diversification of investments in so far as appropriate to the circumstances of the scheme;
    • Common law – in general trustees should exercise their powers for the proper purpose for which the trust was created.  In relation to investments, they must take such care as an ordinary prudent man would take if he were minded to make an investment and to avoid all investments "attended with hazard".  As RTL is a professional trustee it is held to a higher duty of care than Mr N when deciding which investment to make.

Having considered the duties of RTL, the Ombudsman considered whether RTL had discharged its duties finding that RTL had failed to do so and:

  • The Ombudsman found that had RTL adequately performed its role that should have involved:
    • Taking "proper advice" prior to making the investment.  Although Mr N received advice on the investment there was no indication that RTL had, or even that RTL had considered the advice provided to Mr N.  The failure to obtain proper advice was itself a breach of the Pensions Act 1995.
    • Considering only relevant factors when making the investment decision.  There was no evidence that RTL went through a proper decision-making process, and instead RTL appeared to have expressly said it would not consider the suitability or risks of the investment.  Further there was no evidence that RTL considered the need for diversification of investments.
    • RTL should have taken legal advice if it was unsure of its role and duties as Independent Trustee.  This was also the case given the nature of the investment in The Resort Group involved the fractional ownership of a hotel suite.  It was also unclear on the evidence why RTL considered that it held good title to the investment or how the investment might be safeguarded in the event of wind-up.
    • Ongoing consideration of the investment.  There was again no consideration of the investment at regular intervals to consider whether it remained appropriate.

Having found that RTL had acted in breach of duty, the Ombudsman then considered whether or not the investment was one which no other reasonable trustee could make.  In finding that the investment was one that no other reasonable trustee might make, the Ombudsman relied on the following factors:

  • It was known that fractional hotel investment opportunities presented a risk as early as 2010 and that even if this had not been evident from the outset as/when it became clear, steps should have been taken to review the investment and dispose of it.
  • The pensions industry was also advised to be aware and diligent in respect of high risk investments.  Here the Ombudsman drew on FCA  publications targeted at SIPP providers noting that RTL was part of Rowanmoor which also operated a SIPP (regulated by the FCA) and "so those individuals involved in the running of RTL will be familiar with the FCA's requirements in relation to SIPP investments".  Having considered the FCA's various publications, including in October 2013 its warning in respect of unregulated collective investment schemes, the Ombudsman found that a reasonable trustee would not invest the vast majority of a member's fund in an opaque, illiquid and risky investment that was not covered by FSCS protections and that a speculative investment strays from one made with a "prudent degree of risk" to a "speculative" investment with "inherent hazard".
  • Consideration also needed to be given to the circumstances of the individual member and the requirement to consider diversification of investments.  The Ombudsman acknowledged that had the investment been a small part of a balanced and diverse portfolio or the customer a sophisticated individual with other sources of wealth the outcome may have been different – but that was not the case on the facts – where 85% of Mr N's portfolio was invested in The Resort Group.  Further at the time of the investment Mr N was aged 60 and the transfers in to the SSAS represented his most significant private pension provision.

Finally the Ombudsman considered the issue of where liability sat given Mr N was also a trustee of the SSAS and the starting position is that trustees are jointly and severally liable for the decisions that they make.  The Ombudsman first found that Mr N could pursue RTL as a co-trustee even if he had consented to the investment on the basis that he did so without the necessary knowledge and understanding of what he was concurring in given, in particular, he did not have a real understanding of the nature of the investment, how inappropriate it was for his circumstances or retirement provision generally, the difficulties in establishing title or the warnings over Cape Verde property purchases – these were all factors that RTL as professional trustee should have had a detailed knowledge of.  The Ombudsman then found that apportionment between the parties – rather than joint and several liability between the trustees – was the appropriate course of action with an 80%/20% split between RTL and Mr N.

The Impact

The decision will be of relevance to all those involved with SSASs and the SSAS provider is a trustee of the SSAS.  Careful consideration will need to be given to the trust deed and rules first as to what role the trustee is playing – if there are no limitations on the role then the SSAS trustee should be considering its investment obligations as provided for in the trust deed and rules, legislation and common law.  It is not enough to simply follow the instructions of the customer also acting as a trustee.  

The decision also establishes that where a SSAS provider is a trustee of a SSAS it will be held to a higher standard as the professional trustee compared to the customer also acting as trustee.  On the facts of the case before the Ombudsman, it did not have to consider what those higher standards involved, and so we will have to wait for a different case for the finer details of that higher standard.  It is also of note that where one trustee has a higher level of understanding – such as with a professional trustee - then the usual rule that trustees are jointly and severally liable for their actions may be displaced leaving the professional trustee more exposed.  This is relevant not just for SSASs but trusts generally where there is a professional trustee.

The decision notably does not have any impact on SIPPs (where we often see complaints about investments before FOS) as the decision expressly notes that SIPP trustees act as bare trustees and so have limited decision making powers and obligations to follow the instructions of other parties.  However, the decision of the Pension Ombudsman arguably brings SSASs in line with SIPP providers in terms of the potential responsibility for investments made, with the added risk for SSAS trustees that complaints before the Pension Ombudsman, unlike FOS, are uncapped.

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