Pension Trustee Liability: Apportioning Responsibility Between Professional and Member Trustees

A recent decision of The Pension Ombudsman (TPO) sets out the duties of independent trustees in Small Self-Administered Scheme (SSAS) and in particular their duties towards investment due diligence. The decision also looks at the split in responsibility between a member trustee and a professional trustee.

Background

In 2014, the Complainant sought to invest in the German Property Group (GPG) following correspondence with an unregulated introducer which was promoting investments in GPG. 

To facilitate the investment, the Complainant applied to Rowanmoor to set up a SSAS (indicating in the application form an intention to invest in GPG). The Complainant was appointed as a member trustee alongside Rowanmoor Trustee Limited (RTL) as 'independent trustee', making them joint trustees. The Complainant was the sole member of the SSAS.

Rowanmoor explained to the Complainant that it could not offer advice on the suitability of the proposed GPG investment, nor could it provide guidance on the legal process involved. To that end, the Complainant was asked to sign a disclaimer, excluding Rowanmoor of all liability connected to the investment (albeit TPO found it was unclear if this disclaimer applied to Rowanmoor as trustee and/or Rowanmoor as administrator). The Complainant signed the disclaimer, confirming that he understood the risks associated with the GPG investment. The Complainant chose not to obtain legal or regulated advice before making the investment despite being recommended to do so by Rowanmoor.

In January 2015, the Complainant instructed Rowanmoor to invest £84,700 into GPG following input from an unregulated party. 

In October 2020, the FCA, Financial Ombudsman Service and the FSCS announced that GPG had entered preliminary insolvency proceedings in Germany. The properties owned by GPG were valued at approximately €150m, meaning that investors (including the Complainant) were likely to lose most of their investment.

The Complaint and TPO’s Decision

The Complainant referred his complaint to TPO regarding the suitability of investments chosen and held by the SSAS, particularly with regard to RTL's involvement as independent trustee. The Complainant requested that Rowanmoor place him in the financial position he would have been in had the investment not been made.

TPO's findings

TPO’s investigation focused on the duties and responsibilities that both Rowanmoor and RTL held in relation to investment due diligence. Its findings were based on a similar case (PO-25984) involving Rowanmoor’s role as trustee of a different SSAS and involving a different investment.
In its determination, TPO concluded that Rowanmoor, in its capacity as the scheme administrator, had fulfilled its administrative duties. However, the complaint against RTL as the independent trustee was upheld on the basis that it should be held to the standard of a professional trustee and ultimately failed to meet its legislative obligations and breached its duty of care to the Complainant by allowing the GPG investment without adequately assessing its suitability.

The Role of RTL as Professional Trustee

TPO’s reasoning highlights the differences between the roles of professional and member trustees. While the Complainant, as a co-trustee, had the authority to approve the investment, RTL, as a professional trustee, was uniquely positioned to assess the suitability of the investment. As a professional trustee, RTL had a heightened responsibility to ensure that the investment was suitable for the SSAS member and aligned with the best financial interests of the member.

The investment in GPG was deemed high-risk, given that it was an unregulated overseas property investment and involved loan notes promising high returns, regardless of market conditions. TPO stated that no reasonable trustee would have approved such an investment, especially without conducting proper due diligence. The failure of RTL to properly assess the GPG investment resulted in a breach of its duty of care owed to the Complainant. TPO emphasised that RTL had fundamentally failed to understand and meet its duties, despite continuing to charge fees for its services.

Apportioning Liability

While the Complainant was involved in approving the investment as co-trustee, TPO found that RTL, as the professional trustee, held the lion's share when it came to responsibility for the investment decision. Given that RTL had a duty to ensure the investment was suitable and had failed to do so, liability was apportioned 80% to RTL and 20% to the Complainant.

TPO’s approach reflects the understanding that RTL, as the professional trustee, had the expertise and duty to prevent unsuitable investments, while the Complainant, as a less experienced co-trustee, should not be deemed equally responsible for the failure to assess the investment properly.

Conclusion

This decision serves as a stark reminder of the fiduciary duties trustees owe to pension scheme members. Professional trustees, such as RTL, are held to a higher standard of care and are expected to conduct thorough due diligence, particularly when it comes to high-risk investments. 

TPO's determination underscores the importance of understanding trustee obligations and highlights the potential consequences when these duties are neglected. For pension schemes and their trustees, the decision provides a clear example of how liability will be assessed in cases involving unsuitable investments and the apportionment of responsibility between professional and member trustees.