Power or Attorney and its complexities

A lasting power of attorney (LPA) is a legal document that lets your client appoint one or more people, known as ‘attorneys’ to help them make decisions or to make decisions on the client’s behalf.  There are 2 types:

1. Health and welfare
2. Property and financial affairs

Appointing a POA is a very emotive subject for many clients, but it is something that advisers have found themselves getting more and more involved in over the past few years.

While a client may feel that control of their financial assets may be taken away if they put in place a POA, the reality is it can give more control if they have an accident or an illness and cannot make their own decisions.

It is a very complex area and while a pension provider can give guidance, it is really the domain of a specialist lawyer, and clients should take their own legal advice and satisfy themselves that their POA accurately reflects their wishes.

For many self-invested personal pension (SIPP) and small self-administered scheme (SSAS) providers, they will have general rules on what they can and cannot accept in terms of a POA. Generally, an instruction signed by an attorney on behalf of the donor member can be accepted for the following:

• Instructions in relation to investments, including surrenders and new applications, subject to confirmation that advice from an FCA regulated adviser has been sought.
• Instructions to transfer pension benefits into the pension scheme, subject to confirmation that advice from an FCA regulated adviser has been given.
• Instruction/notification of contributions being made into the scheme.
• Request to access benefits, including crystallisation of new funds or pension withdrawals from existing crystallised funds.
• Instructions to transfer the pension benefits away from a pension scheme.

Before any instruction from an attorney are facilitated, the pension provider will need to complete due diligence checks in relation to the POA.

This will include ensuring that the POA is registered, valid and remains in force and that the attorney is acting within the scope of their authority. They will also require suitable anti-money laundering evidence for the attorney.

Advised basis

Due to the complexity and seriousness of a POA, pension providers will normally only accept investment instructions on an ‘advised’ basis.

In addition, an attorney should not make death benefit nominations on behalf of the client, unless the Court of Protection has specifically authorised this in advance. This is because the request to make the nomination can be seen as a disposition of the Client’s assets almost making a gift under the client’s will which is not allowable under a POA. The attorney is responsible for the application to the Court of Protection to seek their authorisation.

In general, most POA’s do not include a provision for the attorney to fulfil the member’s duties as a member trustee, so no instruction from the attorney can be accepted where they are signing on behalf of the donor member in their capacity as trustee.

Scheme rules can allow a member trustee to delegate their powers as a trustee to any party, which could include their attorney]. Once received, these instructions will remain in place until they are revoked either by the member or the parties that the powers were delegated to.

This would still apply if the member trustee subsequently lost their mental capacity to act as a member trustee after the delegation date. This enables the scheme to continue to operate without the trustee’s powers being delegated under the POA.

Where a member who acts as a member trustee has already lost mental capacity to act, it will not be possible for that member to delegate their trustee powers. In these circumstances, the scheme rules may allow for the removal of the member as a trustee who has lost mental capacity. This power is exercised by way of a Deed of Removal.

To effect this removal, the administrator would need suitable evidence from a registered medical practitioner to confirm that the member is incapable of managing his or her own affairs. This would enable the scheme to continue to operate for the member regardless of their mental capacity and the scheme could continue to accept instructions from an attorney for all member decisions.

Specific issues for a SSAS

Professional advice should always be taken before removing a member of a SSAS as a trustee.

One of the benefits of a SSAS is the exemption from a number of regulatory and reporting requirements, not granted to other occupational pension schemes. To take advantage of this concession, the scheme must at all times meet the small-schemes criteria which includes having fewer than 12 members and all those members must act as trustees of the scheme. Failure to meet the criteria would impact on the scheme in a number of ways including:

• No employer-related investments in excess of 5% of the net asset value of the scheme are permitted.  This includes loanbacks. Failure to comply would have very serious legal and financial implications on the remaining trustees.
• Full audited accounts and statements of contributions payable would have to be produced
• The appointment of an investment manager is a requirement for any FCA regulated investments
•  Formal Internal Disputes Procedure to be in place
• A schedule of payments prepared and kept up to date
• One-third of the trustees must be member-nominated trustees and reviewed on a regular basis
• Obligation on all remaining trustees to demonstrate knowledge and understanding of the law and principles of operating a pension scheme.

As we see life expectancy increase, the need for POA is increasing and advisers should encourage their clients to have these in place, but due to the complexity, to seek specialist legal advice to ensure they reflect the client’s requirements.

Paul Darvill is administration and technical director at Talbot and Muir