The new standard threshold for pension funds introduced by Budget 2011 has caused some consternation among pension holders, particularly those who are near or above the €2.3 million cap and have not yet planned to retire. Apart from those concerns, the new threshold also brings into focus some of the rules for a pension scheme where a pension adjustment order (PAO) is in place.
A case I am currently dealing with involves a client (43), with a pension of €1.8 million, who is currently going through a divorce and where the court has indicated that 50% of the client’s pension benefits are to be awarded to the client’s estranged spouse. You would think that the client would then be allowed to fund for an additional €1.4 million to take the client’s fund up to the €2.3 million cap. But you would be wrong. Revenue’s view is that, for the purposes of the client’s funding, the estranged spouse’s interest must be taken into account. On the flipside, when calculating the estranged spouse’s funding levels, you ignore the benefits under the PAO. So the client will only be able to retire with a maximum pension fund of €1.4 million and the estranged spouse can legitimately retire with a maximum fund of €3.2 million.
This situation reminds me of a famous quote- “The difference between genius and stupidity is that genius has its limits”
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