The position relating to pensions on bankruptcy has not always been entirely clear. Currently, in order for a pension scheme to qualify for Revenue approval, a pension under the scheme cannot be assigned or surrendered, save in certain limited circumstances. As a result, pension schemes often contain wording prohibiting assignment or surrender and, in certain cases, providing for the forfeiture of the benefit on a member’s bankruptcy. This in turn raised the question of whether or not a pension (not yet in payment) was capable of vesting in the Official Assignee in bankruptcy as part of the debtor’s property.
Part 4 of the Personal Insolvency Act 2012 which was commenced at the end of last year has introduced two new provisions into the Bankruptcy Act 1988 specifically relating to pensions on bankruptcy. Section 44A of the Bankruptcy Act now provides that assets under a relevant pension arrangement (other than payments already received or which the bankrupt was entitled to receive) shall not vest in the Official Assignee. A relevant pension arrangement is defined in the section and includes a retirement benefits scheme, retirement annuity contract, PRSA, overseas pension plan etc.
Section 44A goes on to provide that if the bankrupt is entitled to perform an act or exercise an option under the relevant pension arrangement which will result in the bankrupt receiving any amount of money (i.e. a pension or lump sum), that amount of money shall vest in the Official Assignee. In addition, the Official Assignee will be entitled to perform that act or exercise that option on behalf of the bankrupt. This will apply to acts which can be performed or options which are exercisable by the bankrupt prior to or at the time of the bankruptcy or at any stage within 5 years of the bankrupt being adjudicated bankrupt.
A newly inserted section 44B deals with excessive pension contributions made by a bankrupt in the 3 years prior to being adjudicated bankrupt. Where the Court is satisfied that such excessive contributions have been made, it may make such order as it considers appropriate for the purposes of vesting the excessive contributions in the Official Assignee and making them available to the creditors of the bankrupt. In considering whether or not the contributions to the relevant pension arrangement were excessive, the Court will have regard to, amongst other things, the extent to which the bankrupt was obliged to make such contributions, the age of the bankrupt at the time and the percentage limits applying to those contributions for the purposes of tax relief.
The Court also has the power to make Bankruptcy Payment Orders directing any person from whom the bankrupt is entitled to receive any pension to pay the pension directly to the Official Assignee or trustee. However, such orders could previously have been made under section 65 of the Bankruptcy Act and, as such, this is not necessarily a new development.
As is often the case with pensions and the law, each case will have to be considered on its own facts and certain issues may still arise. For example, where the Official Assignee seeks to exercise an option on behalf of the bankrupt and that option is subject to employer/trustee consent, to what extent can the employer/trustee refuse to grant its consent? If the rules of the scheme do provide for forfeiture in the event of bankruptcy, will that be overridden by the new provisions of the Bankruptcy Act or will the Official Assignee be able to obtain an order directing the trustees to pay the benefits to the Official Assignee in any event? Overall, however the new provisions are likely to be welcomed by trustees, administrators and legal advisers alike for bringing some clarity to this area.