When a trustee loses capacity, every aspect of running the SSAS becomes vulnerable to delay or dispute and in unfortunate situations, both. Caitlin Southall, Director of SSAS Transformation and Proposition at WBR Group explains how an incapacity clause provides a legal and robust mechanism to allow alternative decision making powers in the event they are needed.
I recently spoke with a financial adviser who was dealing with a long term client who had unfortunately been diagnosed with dementia.
Their capacity was fast becoming affected, and they were acting as one of a number of trustees under their small self-administered scheme (SSAS) which was held with another major trustee.
The Trust Deed for this particular scheme didn’t contain any clauses to protect the members or trustees on the occurrence of such a sad situation.
An already difficult circumstance was made more complex because of the inability to enact meaningful decisions in respect of the SSAS.
The outcome in this case? Delays, legal costs and stress. A worst case scenario on top of an emotionally difficult situation.
What is irrefutable is that an incapacity clause in a SSAS Trust Deed is now not only a ‘nice to have’ but an essential protection for all involved with the scheme and the beneficiaries.
Lack of capacity when it comes to scheme trustees is always going to be a challenge, especially where it is fast impacting and, in those circumstances, where the member is the only trustee.
SSASs are unique in the pension landscape because of the level of member trustee involvement in day‑to‑day decision making. All decisions relating to the SSAS must be unanimous.
Where you have an incapacitated trustee, this becomes very challenging.
Unlike contract based arrangements or master trusts, SSAS trustees have an involved and proactive role in everything from investment decisions, property management, borrowing, banking arrangements, to compliance.
When a trustee loses capacity, every aspect of running the SSAS becomes vulnerable to delay or dispute and in unfortunate situations, both.
An incapacity clause provides a legal and robust mechanism to allow alternative decision making powers in the event they are needed.
In my experience, many trustees and advisers assume that a Power of Attorney (POA) will offer adequate protection in respect of the SSAS.
Unfortunately, this isn’t the case. Whilst a POA is always beneficial to have for wider financial matters, it won’t automatically give authority to “step in” when it comes to the trusteeship of the SSAS.
The reason for this, and it’s an important point that is often missed, is that becoming a trustee of a scheme is a personal appointment, meaning a POA often won’t be sufficient if the trustee becomes incapacitated.
Incapacity can take many forms, but it is unavoidable that diagnoses such as dementia or Alzheimer’s are becoming more common.
The Government undertook a lengthy study last year that showed that there were record highs of such diagnoses in 2024, with over 1m people around the age of 65 currently affected.
I would liken the inclusion of this clause to getting an insurance policy, you hope you never need to call on it but it’s there if you need it. It allows protection without undermining the other member’s rights.
A robust incapacity clause should include the determination of how capacity is defined, and how the affected trustee’s share (if also a member) of the scheme is protected.
The key is to provide continuity and novation of responsibility whilst taking into account the need to ensure decision making is clear, measured and documented.
If the scheme’s rules don’t say what should happen, or if the trustees themselves have the power to appoint or remove a trustee, you may end up having to use legal routes such as the Trustee Act 1925 or even applying to the Court of Protection, especially if the person who has lost capacity is also a member of the scheme.
These processes can take a long time, can be expensive, and can result in additional emotional strain for the other trustees and members.
Prudent trustees should ensure that there is a periodic review of the terms of the trust deed to make sure they remain fit for purpose and that the clauses reflect the reality of running a compliant SSAS.
This includes checking that the deed contains clear protections, such as an incapacity clause, so that the SSAS can continue to operate efficiently, fairly, and without unnecessary disruption if a trustee’s circumstances change.
Regular reviews strengthen governance but also give trustees peace of mind that the scheme is prepared for whatever challenges the future may bring.
Main image: report, paperwork, romain-dancre-doplSDELX7E-unsplash
