Dáil Drawdown - Early release of pension funds

In another instalment of Dáil Drawdown, early release of pension funds is discussed. Let us know what you think of Deputy Patrick O' Donovan's proposal. 

Deputy Michael Noonan went on to say:

"A number of proposals have been made that individuals should be allowed access to their pension savings prior to retirement. Various rationales have been advanced to justify these proposals, including that such access would allow those individuals to pay down mortgage and other debt and would otherwise provide a boost to economic activity.

This is not a simple matter. During 2011, at the request of the Government’s Economic Management Council (EMC), an ad-hoc group was established under the chairmanship of the Department of Social Protection to consider the idea of allowing people to access their pension savings before pension age in order to assist them in paying down debt. The ad-hoc group presented a detailed report to the EMC in September 2011. The conclusions of the Aa-hoc Group report were that:

Ø There is no evidence that, in general, the group likely to be most affected by mortgage debt (or other debt) has access to sufficient pension savings to make a difference to their situation.

Ø The legislative and administrative implications for such a scheme would be extremely complex and would appear excessive given the overall impact.

Ø Longer term difficulties whereby people are not making adequate provision for their retirement would be exacerbated, with potential for increased demands on the State.

Ø Individuals cashing in their pension savings now would get poor value in current circumstances which they would struggle to replace in the future.

The “Keane Group” on mortgage arrears did not dispute these findings and early access to pension savings did not feature among the recommendations of that Group. A more general scheme of early access to pension savings would present significant problems in terms of the proper targeting of the use of accessed funds and controls over potential abuse.

The tax treatment of pension savings for which I have responsibility is only one aspect of the broad policy of encouraging people to provide for an adequate income in retirement beyond the basic State pension. This policy area is the responsibility of my colleague, Ms Joan Burton TD, Minister for Social Protection, who I know is also aware of the proposals being made for early access to pension savings. The OECD is currently carrying out an independent review of long term pension policy in Ireland on behalf of the Minister for Social Protection. I have been advised, in response to a request from me in this matter, that the terms of reference of the independent review are such as to facilitate consideration of the issue of early access to pension savings and I would expect that the OECD review would deal with this issue".

Who is your scheme administrator?

With the increasing number of complaints being made to the Pensions Ombudsman, it is worth noting some of the decisions published by his equivalent in the UK. One recent decision which made me stop for a moment, was the decision by the UK Ombudsman in the determination of a complaint by a Mr Middleton (80448/1) where it was held that a financial adviser who takes on administrative duties relating to a pension fund transfer comes within the Pensions Ombudsman's jurisdiction as an "administrator" concerned with the administration of an occupational pension scheme. This is the case even if the adviser does not consider that it was appointed or paid to provide such services, and regardless of whether such actions might contravene regulatory rules. The Middleton case was taken as a result of a loss caused by a delay by Mr Middleton’s financial advisor to act on a set of instructions. The advisor took six weeks to request a fund discharge form from a life company. Secondly, it did not pursue the life company quickly enough when the forms were lost. Thirdly, it mistakenly advised Mr Middleton that the transfer value could not be lower than the last available figure provided.

It was held that the advisor had a duty to "carry out these administrative tasks efficiently and on a timely basis" but that the advisor had instead been responsible for several delays and mistakes amounting to maladministration.

So how would such a case pan out in Ireland? The Pensions Ombudsman's jurisdiction is governed by:

·         The Pensions Act 1990-2012 (the “Act”)

·         The Pensions Ombudsman Regulations 2003 (the “Regulations”)

The Ombudsman has jurisdiction to investigate specified complaints against or disputes with persons responsible for the management of an occupational pension scheme (scheme) or Personal Retirement Savings Account (PRSA). Under s131 of the Pensions Act the Ombudsman may investigate a complaint relating to maladministration “done by or on behalf of a person responsible for the management of that scheme.”

Section 126 (3) and (4) of the Regulations specify those who are deemed to be responsible for the management of a scheme or PRSA. Article 3 of the Regulations extends the category of person deemed to be responsible to include the administrator of a scheme or PRSA to the following:

1.  any person providing a service in relation to the administration of a scheme or a trust rac;

2.  any person to whom the performance of the duties of trustees of a scheme or a trust rac under section 59 (1) or (2) of the Act has been delegated;

3.  any person who is the administrator of the scheme or trust rac for the purposes of section 770(1) of the Taxes Consolidation Act 1997; or

4.  any person to whom the application or interpretation of the rules of a scheme or trust rac has been delegated in accordance with those rules.

While it is often clearer, in the case of non-insured arrangements, who the administrator (s) is, it is not so clear when it comes to the establishment of a pension arrangement by a life company where the paperwork usually appoints the employer company as the scheme administrator.

But when issues arise, I have no doubt the employer company would consider the adviser and the pension provider as the administrator. This issue is only now coming to the attention of the Ombudsman, and indeed the Irish courts, and I am sure some interesting cases will be issued over the next couple of years due to the fact that the legislation detailed allows the definition of an administrator to be widely construed.

Paul Gilmer

Solicitor

ITC Consulting

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