Charlene Young: Power of attorney and pensions explained

Charlene Young looks at power of attorney and pensions and outlines four key things advisers should look out for

With more than 4.7 million current powers of attorney (POAs) on the register, just how do they interact with today’s pension schemes and what should advisers be looking out for?

At first, you need to consider what decisions you and your client are looking to delegate as this will influence the documents you require.

Type of document

If the client still has mental capacity, a new Ordinary or Lasting POA can be made. However, an ordinary POA would cease when the donor loses capacity so is not considered a long-term planning option in isolation. It is however useful if the client was to be away for a period of time to enable minor decisions to be made about their wider personal finances.

The Covid-19 pandemic and high-profile cases of illness in the news has again taught us the importance of long term planning in the event of a loss of capacity. To ensure the ability to deal with pensions in the event of a future loss of capacity, a Lasting POA is required.

Although a property and financial Lasting POA would be the go-to application now, a handful of people may already have the older style enduring POAs that were made before 1 October 2007. These must be registered with the Office of the Public Guardian (OPG) when the donor starts to lose or has lost their mental capacity or it cannot be used going forward.

A Lasting POA must be registered with the OPG at outset before it can be used, and (unless the document states otherwise), the donor can act and make decisions before and after capacity is lost.

A registered enduring or lasting power of attorney can be used to delegate decisions that a client would make as a member of a pension scheme, for example the decision to commence taking pension benefits.

Certifying copies

There are specific rules on how copies of POAs are certified (and by whom) which can be found in Section 3 of the Powers of Attorney Act 1971. A copy can only be certified as an original by the donor themselves, a solicitor, a notary public or a stockbroker. Strictly speaking, a ‘stockbroker’ does not include a regulated financial adviser.

The person certifying it must include their full name, and every page of the copy must be signed, dated and contain wording that says it is a “true and complete copy of the corresponding page of the original”.

Acting as a trustee

Where the member is also a trustee of the pension scheme, which will be the case for a SSAS as well as SIPPs that require the member to be co trustee, then the Lasting POA cannot be used for decisions that would be made by the client as a trustee.  

The exact decisions would depend on the scheme rules, but a common example would be the making of new investments or changes to existing holdings.

The delegation of trustee powers would need to be made using a Trustee POA that complies with the wording given in section 25 of the Trustee Act 1925. Trustee POAs can only be made whilst a donor has capacity and last for just 12 months. If the donor retains capacity, then they can be renewed.

Changes coming

In terms of what we would like to change, modernisation of the Trustee Act 1925 feels like an obvious place to start. As we have seen, it isn’t uncommon for a member of a pension scheme to also be a trustee and today’s pension flexibility in retirement means those members will be remaining as trustees into very old age.

What is actually in the pipeline though is work by the OPG to expand its online ‘Use an LPA’ service. As of March 2021, Lasting POAs registered since 1 September 2019 will see both Donor and Attorney(s) given an activation key enabling them to set up an online account into which they can view details of the registered Lasting POA. (Previously it was only Lasting POAs registered from 17 July 2020.)

Access codes can then be provided to financial institutions and government departments can check POAs online and hopefully provide some relief to what can feel like an endless paper trail at times.

This might also help ease the certification woes once older Lasting POAs are added to the service.

We are also awaiting a consultation later this summer from the Ministry of Justice looking at changes to the legal framework for Lasting Power of Attorneys, including how to help people create and access LPAs more quickly and improve safeguards to best protect the public.

Given it’s such a useful and important document, it’s important that any changes to the framework and processes work for all parties involved, including advisers and providers.

Charlene Young is senior technical consultant at AJ Bell