yes its illegal - anything used to lift a man is subject to loler regulations and must be tested and certificated every 6 months as it is for man-ridinig purposes.
1) if you are going to use a fork lift for man-riding purposes, it must be tested and certified every 6 months.
there are man-riding baskets that can be used specifically with fork lifts that can be hired or purchased. I suspect your pallet is not subject to a 6 monthly testing regime, YOU as the operator AND the company are in breah of health and saftey at work act (1974). and are subject to (in the event of a serious accident) unlimited fines and/or imprisonment therefore you have a duty of care as the operator NOT to carry out instructions requested by your employers in this case and you would win ANY tribunal for unfair dismissal based on those grounds. Not sure how many times youve done it in the past, but be aware the man on the pallett only has to fall off once to ruin yours and his life forever. For your own sake and that of your colleaugue, think "what if....." not "if only....."
The senior staff cannot plead ignorance - because they should be competent personel and have a good understanding of health and saftey law, otherwise they should not have been appointed. Not sure about walking off site, but you can refuse to carry out this unsafe act