SSAS trustees and lack of mental capacity (92)
by Roderick Ramage, solicitor, www.law-office.co.uk
first published by distribution to professional contacts on 8 January 2023
This article is not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case. The author does not accept any responsibility for anything that any person does or does not do as a result of reading it.
rule for private trusts is that, unless the trust instrument otherwise directs,
trustees must act unanimously, except for charitable and pension trusts. The
Decisions of the
trustees of a trust scheme may, unless the scheme provides otherwise, be taken
by agreement of a majority of the trustees.
of the incapacity of a trustee is, under the general rule, that the other
trustees, even if a majority, cannot make a decision.
Act 1925 s36 provides a remedy, but only in broad general terms.
a trustee, ... is dead, or ..., or desires to be discharged from ... the trusts
..., or is incapable of acting therein, ... then, ..., (a).the person nominated for .. appointing new trustees by
the instrument, if any, creating the trust; or (b) if there is no such person,
or ..., then the surviving ... trustee ... may,
by writing, appoint one or more other persons ... to be a trustee or trustees
in the place of the trustee so ... being incapable, ..., as aforesaid.
is not defined. The heading of s38 of
the TA 1925, “Evidence as to a vacancy in a trust”, promises but does not give
a definition. All that the section does
is to provide that
A statement, contained in any instrument ... by which a new
trustee is appointed for any purpose connected with land, to the effect that a
trustee has remained out of the United Kingdom for more than twelve months or
refuses or is unfit to act, or is incapable of acting, or that he is not
entitled to a beneficial interest in the trust property in possession, shall,
in favour of a purchaser of a legal estate, be conclusive evidence of the
incapacity can normally be established if the trustee lacks capacity within the
meaning of the Mental Capacity Act s2, which provides as follows.
a person lacks capacity in
relation to a matter if at the material
time he is unable to make a decision in relation to the matter because of an impairment
of, or a disturbance of, the mind or brain”
practice, despite TPR’s efforts to promote good governance, some schemes
operate casually and fail to be aware of a trustee’s incapacity and its legal
effect until a formal decision is needed.
Normally however the ability to act by majorities means that incapacity
of a trustee should not present significant legal problems.
of the majority to act is particularly acute if (a) a pension scheme is a
“small scheme” in order not to be restricted in its ability to hold employer
related investment, and (b) one (or more) of its trustees loses mental capacity.
40(1) of the Pensions Act 1995 is as follows.
(1) The trustees or
managers of an occupational pension scheme must secure that the scheme complies
with any prescribed restrictions with respect to the proportion of its
resources that may at any time be invested in, or in any description of,
related investments, as defined in s40(2), include land which is occupied or used by the employer or any person
who is connected with, or an associate of, the employer, other property used
for any business carried on by the employer or any such person, loans to the
employer or any such person. Any trustee
who fails to take reasonable steps to secure compliance may be required by the
Pensions Regulator (TPR) to pay a penalty not exceeding £5,000 if an individual
or £50,000 if corporate. In addition any
person who agreed to make the investment is guilty of an offence and liable to
an unlimited fine and, in extreme cases, imprisonment.
By reg 12(2) of the Occupational Pension
Schemes (Investment) Regulations 2005, SI 2005/3378, the proportion is not more
that 5% of the current market value of the resources of the scheme at any time
and none in any employer related loan.
Reg 12(1) however provides that reg 12 does not apply to small
schemes. A “small scheme” is defined in
reg 1 as (abbreviated)
a scheme with fewer than 12 members, where—
(a) all the
members are trustees of the scheme and either—
(i) the provisions of the scheme provide that all decisions
which fall to be made by the trustees are made by the unanimous agreement of the
trustees who are members of the scheme, or
(ii) the scheme has a trustee who is independent in relation
to the scheme for the purposes of 1995 Act (power to appoint independent
trustees), and is registered in the register maintained by the Authority ... ;
(b) (corresponding provisions for the directors of a
company which is the sole trustee of the scheme).
passing, but not necessarily relevant to a trustee’s mental capacity, the requirement
for unanimity does not preclude weighted voting.
small scheme is the kind of scheme, which, before 6 April, 2006 was known as a
small self-administered pension scheme (“SSAS”) and is still commonly referred
to as an SSAS.
the assertion that TPR made in at least one instance, that the unanimity
requirement applies to only the active members, the Pension Act 1995 s124
“Member” in relation
to an occupational pension scheme, means any active, deferred, pensioner or pension
credit member ... .
The problem, put
simply, is that the Trustee Act 1925, the Pensions Act 1995 jointly with the
If it is not possible
or desirable to transfer the trustee’s benefits out of the scheme and the
appointment of an independent trustee is too expensive, the unanimity rule can
be satisfied by the trustee lacking capacity appointing an attorney under the Trustee
Act 1925 s25 (inserted by the Trustee Delegation Act 1999 s5) to exercise his
or her functions as a trustee. The s25
power, which must be renewed annually, may be executed by:
- the trustee, if, although
lacking the capacity to act as a trustee, he or she has sufficient capacity to execute
it, or, if not,
- if the trustee has
executed an enduring power of attorney under the Mental Capacity Act 2005 s5,
that attorney; or, if none
- the trustee’s deputy appointed
by the Court of Protection under the Mental Capacity Act 2005, s16.
The last resorts are
for the other trustees to apply to the court for direction (expensive) or
chance it by doing nothing, ie acting by a majority and hoping that no one will
copyright Roderick Ramage
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