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Personal Insolvency Act 2012 (the "Act")

  • Ireland

    13-02-2013

    

    How will it impact on pensions?

    Under the Bankruptcy Act 1988, the general rule is that all property “belonging” to a person adjudicated bankrupt on the date of adjudication vested in the Official Assignee. The extent to which this rule extended to pension assets depended on the type of pension vehicle the person being declared bankrupt participated in and the actual terms of the pension scheme or policy.

    The 1988 Act has now been amended to include detailed and prescriptive provisions relating to the treatment of pension assets on bankruptcy.

    The New Regime

    The Act provides that payments a bankrupt is or may become entitled to under a relevant pension arrangement shall not vest in the Official Assignee on bankruptcy for the benefit of creditors.

    The term “relevant pension arrangement” includes occupational pension schemes, PRSAs, personal pensions and public sector pension arrangements.

    However, what seems like a wide protection for pension assets initially, is heavily qualified due to the fact that the protection does not cover:

    1. payments already received, and
    2. payments the bankrupt would be entitled to receive from or at the request of the person administering the pension arrangement by performing an act or exercising an option either before the date of adjudication, on the date of adjudication or within five years of that date.

    The Act provides that in the latter case the bankrupt shall be considered as being in receipt of such income and it shall vest in the Official Assignee or trustee in bankruptcy. The Official Assignee and trustee in bankruptcy are even given the discretion to perform such an act or exercise such an option in place of the bankrupt where they consider that it would be beneficial to the bankrupt’s creditors.

    These provisions of the Act are expected to come into force in the next few months.

    What will these changes mean in practice?

    Depending on the age at which someone becomes bankrupt, the new powers granted to the Official Assignee and trustee in bankruptcy could extend to them exercising retirement rights on behalf of a bankrupt. Were this to happen, the bankrupt’s pension assets would then become available to creditors.

    However, if the right to receive those monies was subject to third party consent, such as the bankrupt’s employer or the pension scheme trustees, then presumably absent such consent the Official Assignee could not access such pension assets?

    The extent to which such third party consents may in practice fetter these powers is not clear as the legislation is quite ambiguous on this point. What is clear, however, is that where a bankrupt has a unilateral right to access pension assets which is in existence on being declared bankrupt those assets are exposed to becoming available to creditors on bankruptcy.

    These provisions will mean that anyone who is giving serious thought to or advising someone on availing of the new bankruptcy regime will need to look very carefully at how such a move might impact on pension entitlements.

     

    Disclaimer

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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