Professional co-trustee held substantially liable for investment breaches due to insufficient due diligence

The Pensions Ombudsman has upheld a complaint by a member trustee of a small self-administered scheme (SSAS) against the independent trustee for its failure to conduct sufficient due diligence on the scheme's investments.

After receiving unregulated advice, the member transferred to the newly established SSAS and invested in storage pods and airport car parking spaces, both of which later failed. The member trustee then complained to the Ombudsman, requesting that the scheme administrator and the independent trustee put him back into the position he would have been in had the investments not been made.

Basing its decision on a previously decided case on shared key material facts, the Ombudsman applied the same reasoning and reached the same conclusion. Accordingly, the Ombudsman dismissed the complaint against the administrator, concluding that it discharged its responsibilities in relation to the overall administration of the SSAS in a broadly satisfactory manner. However, the complaint was upheld against the independent trustee on the grounds that the investments were in breach of trust and of the standard of care expected of a professional trustee. In particular, the independent trustee had failed to have regard to the need for diversification, assess the suitability of the investment or act in the member trustee's best financial interests.

While the member trustee was held jointly responsible for the investments made, the Ombudsman considered that, in terms of liability, specific apportionment of responsibility, rather than joint and several liability, was appropriate. The independent trustee's share was 80 per cent as it was uniquely placed to apply its professional judgment in assessing the suitability of the investments and prevent them from proceeding.

The Ombudsman directed the independent trustee to calculate the member's financial loss, based on notional and actual values of the investments and former pension policies, and pay a sum equivalent to 80 per cent of the financial loss (allowing for tax relief). Separately, the trustee was required to pay the member £1,000 for the materially significant distress and inconvenience caused.

Read the Determination.