The Pensions Ombudsman provides a stark reminder of the importance of conducting adequate due diligence on high-risk investments as a professional SSAS trustee

In a recent determination from the Pensions Ombudsman (TPO), TPO decided that a professional trustee of a small self-administered scheme (SSAS) was liable for 80% of the losses arising from high-risk investments on the basis that insufficient due diligence was conducted on these investments.

Background

Over 40 complaints were made to TPO concerning losses connected with Rowanmoor Group plc (RG) SSASs; most of which concerned a single‑member executive pension scheme that heavily invested in high‑risk, illiquid assets, which ultimately failed.

TPO took three lead complaints in order to set a precedent for the remaining complaints. The lead cases involved Mr H, Mr N and Mr GT (the Complainants).

Each of the three complaints are separately detailed in TPO's determination. However, all Complainants were approached by various unregulated introducers - such as Roseland Mill Limited and Strategic Alternatives Limited - to invest in various high-risk illiquid assets such as German Property Group (GPG), Akbuk, The Resort Group (TRG), Store First and Park through SSASs with RG.  The Complainants agreed to proceed with the above investments and opened their respective SSASs with RG to do so.

RG was the scheme administrator and was responsible for establishing and administering the SSASs and for issuing the “Reason Why” letters which addressed the eligibility of the proposed investments under pensions legislation and the scheme rules, while expressly disclaiming any responsibility for suitability.

Rowanmoor Trustees Limited (RTL) was the independent professional trustee of each scheme, alongside the individual member trustees (the Complainants). Under the trust deed and rules, investment decisions had to be unanimous, giving RTL an effective veto over proposed investments and imposing on it the usual statutory and common law duties of a professional trustee.

Ultimately, the underlying SSAS investments began to fail.  GPG collapsed into insolvency, serious problems affected Store First and Park First, greatly reducing their value and Akbuk and TRG hotel developments became effectively worthless. The Complainants faced very substantial, often near‑total, losses to the value of their pension investments.

The Complaints against RG and RTL

The Complainants referred their complaints to TPO, broadly alleging that that both RG and RTL had failed in their respective roles.

As scheme administrator, it was alleged that RG had failed to protect members by allowing the inappropriate investments. The case against RG was that it had treated its role as a box‑ticking exercise on technical eligibility of an investment, instead of intervening to prevent unsuitable investments that were fundamentally inconsistent with the proper purpose of a pension scheme.

The allegations against RTL as independent professional trustee focused on breach of trust and breach of statutory and common law duties. The Complainants alleged that RTL failed to act as an effective fiduciary safeguard over the schemes’ investment decisions. Despite being a co‑trustee with equal voting rights and an express obligation to take investment advice before making investments, RTL did not obtain or heed appropriate advice, did not assess the suitability of the proposed assets for the members, and permitted the schemes to become heavily concentrated in speculative, unregulated investments.

The Decision

TPO found that RG, as administrator, had broadly discharged its administrative functions and did not uphold the complaints against it.

However, TPO concluded that RTL had breached its statutory and common law duties as a professional trustee by permitting these speculative investments and failing to safeguard members’ financial interests. While recognising that the Complainants were co‑trustees and bore some responsibility, the Ombudsman held that RTL, as the professional trustee with the expertise and power to prevent the investments, was primarily at fault, generally allocating 80% of the loss to RTL and 20% to the Complainants, with some case‑specific variations.

The TPO’s reasoning was applied not only to the three lead complaints decided in the body of the determination, but also, via the appendices, to a further cohort of 40 plus members who invested in similar high‑risk assets through RG SSASs.

Key takeaways

Becoming a professional trustee brings with it significant legal and fiduciary duties and a higher standard is applied than that of a lay trustee.

A professional trustee must actively engage with its duties, rather than simply signing documents or following others’ wishes. Investment responsibilities should be taken seriously, and the professional trustee should understand, question and scrutinise proposed investments. This is to ensure that there is sufficient information to challenge arrangements that appear high‑risk, undiversified or unsuitable.

In short, a professional trustee who passively accepts investment decisions without proper consideration is at real risk of being found in breach of trust if the scheme suffers a loss on those investments. On the other hand, a pension administrator who largely did what it had contracted to do is likely to avoid liability even if investments go wrong.  TPO's determination also broadly brings TPO into line with FOS decisions against SIPP providers where similar decisions have been made citing due diligence obligations on FCA regulated SIPP providers.

Click here to read TPO's determination.