Can creditors seize a pension fund?

[Brendan Burgess]

If a person has a large defined contribution pension fund and he becomes bankrupt, is the pension fund ring-fenced?

From the Brendan Murtagh case, the ARF is a personal asset and must be made available to creditors.

So if someone is retiring, they should take an annuity instead of an ARF, so that creditors shouldn't seize it. However, they may have to contribute the income from the annuity to towards their creditors.

But if someone has a choice, should they stay in the pension fund as long as possible to avoid the fund getting caught by the creditors?

 

[Conan]

Brendan,
An interesting question. I am not sure that there is a simple answer.
1. If the the fund is a Personal Pension (self employed) it cannot be accessed until age 60 at the earliest. If one was declared bankrupt, it is possible that a Court could force the individual to access the funds from age 60, but I have never heard of such a case.
2. If the fund is an occupational pension then technically it is "owned" by the Trustees until the member retires (could be from age 50).

My understanding in the Murtagh case is that the basis for the decision has not been published. Did Mr. Murtagh agree to the Court order?

So the issue could have two legs:
- could a Court force an individual to retire and access the funds?
- when the individual does decide to access the funds, could the Court determine how the funds are used (whether an ARF or Annuity)?

Clearly ( as appears to be the case with the Murtagh ARF) if the individual is getting a lump sum (25% of the Fund perhaps) and has a residual lump sum that could be invested into an ARF, the Court might seek to access these funds. But would an amount of €119,800 still have to be invested into an AMRF?
However could the individual instead buy an annuity ( a guaranteed income for life)?

From a creditors viewpoint, the lump sum would be attractive, whereas trying to access a monthly pension would not seem as attractive. From that perspective, if the individual was in control of the pension funds, then the annuity will suit them better.

Until the Murtagh judgement is published ( and perhaps some more cases come to Court) it is unclear how such cases might pan out. I am not aware of any other such case, but perhaps other posters may have more to add.

 

[boaber]

Last week the Commercial Court ruled that assets within occupational pension schemes are safe from creditors. Details available here

I'm not aware of any cases involving Personal Pensions or PRSAs, but in theory they may be treated different as they are not held under Trust

 

[Marc]

It is my understanding that a PRSA has statutory protection from creditors.

So, the only potential grey area could be a Personal Pension or Retirement Annuity Contract.

I make the distinction since an old style RAC may have been written under a different form of master trust to a newer unitised contract.

As in most matters, everything will turn on the wording of the product.

My inclination is to say that if a Personal pension is written under trust law then this could afford more protection as the form would be substantially similar to the case this week. This might not be the case for all products but I am not an expert in this. No doubt the insurance companies will have their deeds reviewed in the light of the recent case and will issue guidance in due course.

My guess is that investors in old style personal pensions would probably be better advised to review the charges on their contract and to establish the cost/benefits of moving to a newer low cost product.