The Personal Insolvency Act was signed into law by a busy President on Stephen’s Day. Many column inches have been devoted to its impact on debtors and creditors alike, but little has been written about its effect on pension schemes. However, amendments introduced at a very late stage by the Minister of Justice and Equality in the Seanad will potentially have a significant impact on schemes. Advisers must be aware of them.
There are 3 important principles:
- An individual’s pension fund will not, in itself, be available to creditors. Specifically, under the Act a pension fund will not pass to the “official assignee in bankruptcy” of an individual made bankrupt; nor will it count towards a person’s asset exemption limit for the purposes of qualifying for the basic Debt Relief (which is the first of the 3 debt relief mechanisms under the Act); and nor will a person who enters into a Debt Settlement Agreement or a Personal Insolvency Arrangement (the second and third relief mechanisms) be required to surrender their pension fund. This rule backs up existing legislative requirements preventing the assigning or charging of pension funds and indeed the recent case of EBS v Hefferon & Kearns with which we were involved.
- On the other hand, “pensions in payment”, i.e. pension benefits being paid out to a pensioner, will be available to creditors and the official assignee or trustee in bankruptcy. Benefits which have been deferred by the pensioner will also be available. So, any pension income actually being received or receivable will be at risk. However, a person who enters into a Debt Settlement Agreement or a Personal Insolvency Arrangement under the Act will not be required to draw down a pension early. An important protection.
- Where “excessive contributions” have been made to a pension arrangement within 3 years prior to a bankruptcy or a person entering into a Debt Settlement Agreement or a Personal Insolvency Arrangement, the court can order that those contributions are made available to creditors.
Broadly, this is good news and should provide comfort to pension scheme members that their pension funds are protected. However, at present Approved Retirement Funds (ARFs) are not regarded as “approved retirement arrangements” for the purposes of the Act and so ARF funds are not protected. While this is consistent with Revenue’s view that ARFs are not pensions, many would consider it unfair in that they are quite rightly regarded by clients as their pension funds. The Minister is empowered to bring other pension arrangements within the ambit of the Act and it is to be hoped that he will do that in the case of ARFs.
One final recommendation for all advisers. When advising on the set-up of a pension arrangement, advisers must always bear in mind the security of the arrangement in relation to creditors. If it were needed, the Personal Insolvency Act emphasises the importance of appreciating that not all pension structures are treated the same by the law. Clients must be advised accordingly.
*Please note this content is the view of the author and not of Independent Trustee Company