With the self assessment tax deadline and the corresponding pension opportunity imminent, the following are a couple of points we would like to share with you.
A recent ruling shows how protected the pension is as a company asset
2 October 2012
Commercial Court rules pension fund assets safe from creditors
The Commercial Division of the High Court today delivered a judgment which provides some welcome clarity on the extent to which pension fund assets may be attached by creditors. This topic has been extensively debated in the pensions and banking industries since a High Court decision in 2010 saw Brendan Murtagh lose his approved retirement fund to judgment creditors.
Today’s judgment was made on foot of an application by Eversheds on behalf of two individuals (the “Applicants”) who are judgment debtors of a bank.
The Applicants are members of small, self-administered trust-based occupational pension schemes. They have yet to retire and no benefits have been paid out of their respective schemes.
In March 2012, the bank made a successful ex parte application appointing a receiver by way of equitable execution over the Applicants’ pension funds.
The traditional view within the pensions industry has been that pension fund assets in a pre-retirement scenario are generally ring-fenced from attachment by creditors.
The Applicants sought to discharge the order appointing the receiver.
In discharging the order appointing the receiver, Mr Justice McGovern held that pension fund assets are not amenable to attachment via the appointment of a receiver by way of equitable execution. His reasoning was principally based on the following conclusions:
1. under the terms of the pension deeds neither of the Applicants had legal or beneficial ownership of the assets within the pension funds pending retirement;
2. under terms of the scheme rules, the Applicants’ right to receive a pension on retirement is subject to the agreement of the pension fund trustees;
3. the pension funds were established under irrevocable trusts for the sole purpose of providing retirement benefits;
4. the pension funds were established in accordance with the relevant requirements of the Taxes Consolidation Act, 1997 and have been approved by the Revenue Commissioners as being established under irrevocable trusts; and
5. the terms of the pension deeds expressly prohibit the assignment of benefits from the pension funds themselves.
This decision represents a significant legal precedent. It confirms that assets within occupational pension schemes in a pre-retirement scenario are not capable of attachment by creditors. It identifies clear boundaries on the extent to which lenders may pursue a borrower’s pension fund assets in a default situation.
Liquid Asset irrespective of market conditions
We have seen situations whereby clients, at retirement, who had built up other investment assets such as property and share portfolios over their working years, not being in a position to sell or realise these assets due to market conditions. In light of this a greater significance is placed on the pension fund as this is a liquid fund and, once managed, can be draw down at retirement irrespective of market conditions. This has also highlighted the importance of building up the fund as one gets closer to retirement.
Pension – Income in Retirement
With other assets being impacted by the financial crisis e.g, falling rental /dividend income etc, we see more and more clients relying on their pension income as a key source of income in retirement
These are scenarios we are seeing more regularly and highlight the importance of building up the pension fund over the working years.
The following is a link to our pension calculator on our website. This facilitates imputing different contribution levels which show the corresponding fund size at retirement:
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