Commercial Court rules creditors cannot access pension funds

The High Court, on Tuesday, 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 and the very welcome news for many pension holders is that the Court struck out the appointment of the receiver on Tuesday.

The Court considered that the characteristics of the pension schemes precluded the appointment of a receiver. The schemes concerned were individual self-administered schemes and ITC Consulting was appointed by solicitors for some 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 as for many people their pension is their most valuable asset and the idea that somehow creditors could access someone’s pension was an understandable worry.  Thankfully, the judgment has now clarified matters in favour of the pension holders.

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. This is a service that ITC Consulting is well placed to provide in view of its experience in this area.  

Barry Kennelly

Associate Director

ITC Consulting

OECD Review of Pensions in Ireland

At a recent consultation forum in Farmleigh House, the OECD presented the first part of their review of pension policy in Ireland. The presentation, which focused on the initial stage of the review; assessment and evaluation, was presented by John Martin and Ed Whitehouse. ITC's Managing Director Aidan McLoughlin attended the forum and over the coming weeks we will bring you some of the main points discussed. 

As mentioned, the initial stage of the review is the assessment and evaluation stage. The second stage which will presented at the end of the year will see recommendations from the OECD.

The OECD set out a three-pronged strategy for achieving both adequacy and sustainability:

• longer working lives
• greater private-pension savings
• better targeting of public retirement- income provision on those most in need

They ask how does Ireland's policy stance measure up against key criteria?

A key test was the performance of the Social Insurance Fund. This is where PRSI contributions are paid and which will ultimately provide contributors with Social Welfare pensions. Its ability to do this depends on its solvency. As the following slide illustrates the view of 2010 (as projected in 2007) and the actual outcome is radically different – a 30% deficit has now materialised. This fundamentally challenges the ability of the State to continue to deliver Social Welfare pensions at current levels. Those relying on the State for a significant portion of their retirement income should think again.

Over the coming weeks we will discuss the steps taken to resolve this significant deficit and see overseas comparisons in relation to pension provision. 

Source: OECD Review of Pensions in Ireland, 14.09.2012. John Martin, Edward Whitehouse, Anna D'Addio, Andrew Reilly. 

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

Register now! Only 30 spaces left for upcoming Knowledge Forum

Our upcoming Knowledge Forum 'Faster, Higher, Stronger' is filling up quickly, register  today and don't miss out!  

The event will begin with a presentation on up and coming developments within the pensions industry from ITC Managing Director Aidan McLoughlin. We are also delighted to welcome Irish Olympic Performance Psychologist Gerry Hussey back to ITC where he will share his most recent experience from the London Olympics and advise us how we can perform at our best.

Faster, Higher, Stronger - CPD Event

12^th September 2012 08.30am 

Webinar or In House Attendance

To register for the webinar click on the button below which will take you to the registration window, alternatively if you would like to attend in person in our office on Harmony Row e-mail JustAsk@independent-trustee.com. Spaces for in house attendance are limited.

An application for 1.5 hours of CPD will be made closer to the date. CPD certificates will be circulated after the event.

Register now and make sure you don't miss out!

5 Reasons to recommend ITC

Independent Trustee Company are delighted to announce that we have been shortlisted for 5 Irish Pension Awards. The awards which will take place on 21st November 2012 aim to give recognition to pension funds and providers who have proved their excellence, professionalism and dedication to maintaining high standards of Irish pension provision. The categories that we have been shortlisted for can be seen below.

You can find out more information on the awards here.

Generation Y Not

Retirement is too far off and I prefer to enjoy my money now. Sound like what you would expect to hear from a twenty something today? Well it’s not far off! In a recent survey commissioned by ITC, retirement being too far off was found to be the main factor for the reluctance to invest in a pension amongst Generation Y.

Described as the ‘here and now’ generation, it seems that Generation Y view retirement planning as somewhat of an afterthought. In a time when staying with your current employer for longer than three years seems like a lifetime, joining a company pension plan is probably not a top priority for most. But how sustainable is this and what does it mean for the future of this generation? Do they hope to rely on the state pension, currently valued at €12,000 per annum or have they even thought about it? Growing up in an era of prosperity yet arriving at a destination of economic turmoil, are many simply avoiding their financial responsibilities?

Is the issue the challenge of engagement or has the industry simply not tried? Generation Y are seen as the hardest generation to reach, not surprising given the media rich environment that they have grown up in. As an industry, is it our duty to highlight the issue in a way that will force this young population to stand up and pay attention? By 2025 Generation Y will make up 75% of the world’s workforce. This is a scary statistic when you fast forward to retirement time.

Are the consequences of enjoying money now to be realised too late for Generation Y? Not if we adapt our strategies to suit their needs. An on the go generation that demand convenience and accessibility, a pension plan to suit Generations Y’s lifestyle is lacking within the marketplace. But what would the ideal pension product for this demographic look like? It must start with ease of access, the option of early drawdown and bundled solutions that will allow for planning opportunities. We are in need of a product that will work in harmony with the lifestyle choices of the individual.

The dramatic change in how consumers of this generation engage with products demands that we adapt our strategies in order to stay relevant. The product has to be right but indeed so does the message. Pensions need to be marketed in a way that is relatable; relating the cost back to real life terms and demonstrating the consequences of not making retirement provisions.

There is an exciting opportunity here if it is executed in the right way.

Melanie Farrell

Independent Trustee Company