Is a pension fund available to creditors? – Case Law

Part 1 – CASE LAW:

The question is frequently asked whether pension assets may be made available to creditors.

In a judgment delivered in October 2012, Mr Justice Brian McGovern granted an order to discharge the appointment of a receiver over the assets of two small self-administered pension funds (EBS Building Society v. Heffernon & Anor [2012 IEHC 399]).  He stated that the pension funds of the defendants were not amenable to attachment by way of appointment of a receiver by way of equitable execution. In that case, EBS Building Society had been granted a judgement for some €7 million against the defendants and subsequently judgment mortgages were registered over various properties belonging to the defendants.

Each of the two defendants was a member of a small self-administered pension scheme (SSAP), held by trustees and approved as exempt approved pension schemes under section 774 of the Taxes Consolidation Act 1997. By a supplemental deed entered into in 2012, the definition of “normal retirement age” for each scheme was amended from the 60th birthday to the 70th birthday of a member, the single members of each scheme being under 70 but close to 60 at the time.  Mr Justice McGovern noted in his judgment that, under the terms of the pension deeds, neither of the defendants had a legal or beneficial ownership in respect of the assets held within their pension fund until they reach the age of 70 years.  Even after they reach that age, he noted that under the terms of the deeds, their right to receive a pension is subject to the agreement of the trustees and the pension funds were established under irrevocable trusts for the purposes of providing retirement benefits.  The deeds also prohibited the assignment of benefits from each of the pension funds.  On this basis, he found that the pension funds were not available to discharge the sums owed to EBS.

This judgment comes as a relief to the pensions industry, not because it contains any new statement of law but simply because it shows some recognition of the nature of the irrevocable trusts established for small self-administered pension schemes in a pre-retirement scenario.

The 2010 judgment of Mr Justice Peter Kelly in the Brendan Murtagh case had been seen as a landmark decision in allowing creditors to attack pension assets.  The Murtagh case involved an approved retirement fund (ARF) which is a post retirement fund that is wholly and unconditionally available to the retired beneficiary, subject only to the payment of income tax as funds are drawn.  Unlike an SSAP, the beneficiary is absolutely entitled to the assets of his ARF.

The question of whether assets in a pension fund might be made available in bankruptcy was considered in the UK High Court case ofRaithatha (as trustee in bankruptcy of Williamson) v. Williamson[2012 EWHC 909 Ch]. In that case it was established that the respondent aged 59 was entitled to elect to take a pension, the rules of the scheme allowing this to happen aged 55, but that he had not exercised his right to elect to take a pension. The principal issue was whether pension entitlements which a bankrupt was entitled to receive, but had not yet elected to receive, constituted a payment in the nature of income which is from time to time made to him or to which he from time to time becomes entitled within the meaning of the bankruptcy legislation. The court concluded that the pension payments could be brought within the bankruptcy on the grounds that under the rules of the scheme he would be entitled to payment merely by asking for payment.

The circumstances in EBS Building Society v. Heffernon & Anor can be readily distinguished from those in the Murtagh and Williamson cases. In the Murtagh circumstances, the beneficiary of an ARF is effectively the beneficial owner of the assets contained in the ARF which are held by a qualifying fund manager (QFM) as bare trustee or nominee and the assets can be readily called upon by the ARF holder to be distributed to him, subject only to the payment of income tax. Williamson, while not the absolute owner of the assets of the scheme, was seen to be absolutely entitled to call for payment of a pension and therefore this pension could be brought within his bankruptcy.

We have separately outlined the statutory position, since the coming into force of the Personal Insolvency Act 2012, in our note IS A PENSION FUND AVAILABLE TO CREDITORS? Part 2 – NEW PERSONAL INSOLVENCY LEGISLATION.

For further advice on the availability of pension assets to creditors or any other related issues, please do not hesitate to contact either Gordon Judge () or Páraic McKeogh ().