On 2nd October, the High Court delivered judgment in a significant case on pension security on which ITC Consulting advised.
In the case, a bank, owed money by two individuals, initially succeeded in appointing a receiver over the individuals’ pension assets in March this year. The appointment was appealed to the Commercial Division of the High Court.
The issue for the Court to consider was whether it is legally possible for a receiver to be appointed over the assets of pension schemes. The very welcome news for many pension holders is that the Court struck out the appointment of the receiver.
Some of the key points held by McGovern J were as follows:
- Under the terms of the deeds which established the pension funds of the two individuals, neither of them has a legal or beneficial ownership in respect of the assets held within the pension fund until they reach 70 years of age. After they reach that age, their right to receive a pension is still subject to the agreement of the trustees. Therefore, it could not be said that the individuals have an interest in their pension funds that is capable of being subject to the appointment of a receiver.
- There is a long established legal principle that an asset must be capable of being assigned in order for a creditor to appoint a receiver over it. One of the characteristics of a pension scheme is that its benefits are not capable of being assigned. This condition is contained in Section 774 of the Taxes Consolidation Act 1997. It was a further reason that the Court held that the receiver could not be appointed.
- The Court also focused on the fact that the schemes in question were established under irrevocable trusts. Again, it is a Revenue requirement that pension schemes are set up under irrevocable trusts. The Court made a distinction between the pension schemes in the case and a discretionary trust in a case cited by the bank. In that case, a debtor set up a discretionary trust for himself and other beneficiaries and, importantly, reserved a power of revocation. That was seen by the Court as the significant difference between it and the pension schemes in the case.
The Court therefore considered that the characteristics of the pension schemes precluded the appointment of a receiver. The schemes concerned were one member occupational pension schemes and ITC Consulting was appointed by solicitors for the beneficiaries of the pension schemes to give an expert opinion.
The prevailing view in the pensions industry was that pre-retirement benefits were not vulnerable to attack by creditors. However, there was no clear Irish legal authority on the point so the matter was not absolutely free from doubt until the judgment. The 2010 case where a receiver was appointed over Brendan Murtagh’s Approved Retirement Fund had also caused concern.
The issue has received significant attention from the media and commentators because for many people their pension is their most valuable asset and the idea that somehow creditors could access their pension was an understandable worry. Thankfully, the judgment has now clarified matters in favour of the pension holders although there is the potential for an appeal to the Supreme Court.
It is important to note that, whilst most Irish pension schemes have the same characteristics as the pension schemes in the case, all scheme documents must be reviewed to ensure that appropriate protections are in place. Advisers should also be conscious of seeking specialist advice before advising clients to transfer from one pension vehicle to another, for instance on retirement or when accessing personal pensions, as they may be moving to a less secure vehicle.
For further information, please contact Barry Kennelly or Jeremy Mitchell.
t: 01 614 8060
d: 01 614 8068