When does a Power of Attorney not work for pensions?

Published by Robert Hunschok on

Our expert

  • Robert Hunschok

    Robert Hunschok

    SSAS Consultant

  • Estimated reading time: 3 minutes 

    With the UK experiencing an ageing population, instances of dementia reaching new levels and the Government relentlessly adding to the complexity of pensions, we are seeing a trend in pension scheme members looking to delegate certain decisions to their nominated attorneys, via Powers of Attorney.

    But what are the rules and regulations surrounding this option?

    Put simply, yes they can. However, the laws and paperwork surrounding delegation of powers can vary, depending upon which decisions you want to delegate.

    A Power of Attorney may cover decisions made by the donor in their following different roles within a trust-based pension scheme, including a Small Self-Administered Scheme (SSAS) and a Self-Invested Personal Pension (SIPP):

    • Either an Enduring Power of Attorney (EPA) or a financial affairs Lasting Power of Attorney (LPOA ) can be used to delegate decisions that would otherwise be made by a member of the pension scheme (e.g. requesting to draw benefits, transfer out, or alter the amount of pension income); but
    • A Trustee Power of Attorney must be used to delegate decisions made by a trustee of the pension scheme (e.g. choosing and agreeing an investment for the scheme, agreeing fund splits, and other trustee powers as shown in the Trust Deed and Rules ). This blog focuses solely on this type of delegation.
    A Trustee Power of Attorney (TPOA) must comply with section 25 of the Trustee Act 1925 (“the Act”) for it to be valid for trustee decisions (meaning EPAs and LPOAs do not meet the criteria). There are three crucial criteria to meet the requirements of the Act:

    • It cannot last for more than twelve months;
    • It should appoint someone to act as attorney in accordance with section 25 of the Act. Incidentally, the document should take the form of a deed; and
    • Notice of the power must be given to the relevant people (usually the other scheme trustees and, if it has the power to appoint trustees, the principal employer).
    I sympathise with trustees and individuals who are unaware of this requirement, particularly those thinking that a valid EPA or LPOA covers trustee decisions. In my opinion, the Act should be updated to acknowledge that individuals are now acting as trustees for longer. After all, a lot has changed since 1925!

    In the meantime, engaging with your scheme administrator and obtaining proper legal advice should serve to minimise the occurrence of errors, where Powers of Attorneys are concerned.

    Making sure your needs are met

    We can let you know whether the document, prepared by your solicitor, meets the above requirements. If it does, we will liaise with the attorney on trustee-related decisions, going forward.

    A TPOA, by definition, can only be used to delegate trustee powers for up to twelve months, following which it can be renewed, provided the donor retains adequate mental capacity. Below are a couple of examples:

    • A trustee of a SSAS is expecting to be overseas for a number of weeks and so they delegate their powers purely for convenience, giving them peace of mind that essential paperwork will be attended to in their absence;
    • A SSAS trustee’s health is deteriorating and they delegate their powers, allowing their attorney to attend to all trustee decisions/paperwork in readiness for the ailing trustee to transfer their benefits to a pension vehicle that does not require all members to be a trustee (e.g. a personal pension plan or a SIPP where the Operator is the only trustee). Importantly, the member should take financial advice as to which vehicle is most appropriate for their circumstances. 

    I hope you found this information useful. You may also be interested in reading the below. 

    How to prevent penalties for sole trustee SSASs and FURBS

    Taxation of pension death benefits

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