HOW SAFE IS YOUR PENSION?

I think the vast majority of people would answer that question with the answer 'Completely safe'. Unfortunately they would be wrong!
Wherever you travel, from jurisdiction to jurisdiction, there is a general assumption that whatever may happen, no one can touch your pension. Many believe that whilst other assets can be targeted by creditors, the pension remains off limit. That is not the case.
In these difficult times where insolvency is more the norm than the exception it is vitally important that everybody realises this and understands the type of pension that they have, as there are very distinct differences.

In law, your pension is an item of property and is an asset of a member, just like any other asset. It is treated as a current right to a future payment. It is possible to use them as security or assign them to a third party unless there are specific rules to the contrary governing their use. In pre and post Celtic Tiger Ireland, charging pensions as security at the banks to access the sums on offer became quite common place.  In this regard there is a huge difference between an occupational pension and a personal pension and it makes a
substantial difference to you.

Occupational Pension.

By far the better type of pension to hold if you are experiencing serious financial difficulty. An occupational pension is one established by an employer for the benefit of the employees. An employer would neither expect or allow for such a pension to be used as collateral for borrowing or be available to discharge the
liabilities of the employee. You will typically find that occupational pensions include a provision that the benefits of the pension will be forfeited in certain circumstances. These would include any attempt to assign the benefit of the pension if the person entitled becomes bankrupt. In those circumstances the benefit of the pension falls back into the general pool and if the rules permit the trustees can pay the benefit to another class of beneficiary which may be one of the member's immediate family. This will only occur if the rules do so provide and the trustees exercise their discretion in that manner.

Personal Pensions.

Unfortunately these are viewed very differently. A personal pension is subject to contract and typically there are no forfeiture clauses protecting the pension benefit. For this reason, entitlements due under a personal pension are open to attack from creditors.
Many people often think they can ride out the storm as the pension will only be paid out in the future. That hope is largely in vain. The example of re L Bankrupt is a case where no forfeiture clause was available in the pension. A Solicitor took out a retirement annuity contract in 1982. In 1990 a bankruptcy order was made against him and he was subsequently discharged from bankruptcy in 1993. A year later in 1994, he retired and sought the benefits of the policy. The trustee in bankruptcy claimed the benefits under the pension and succeeded in his claim.  Also never forget that the Revenue have significant powers of attachment where a debt is due to a taxpayer. Under the Tax Consolidation Act 1997 the revenue can require that the amount of tax outstanding is deducted from the debt and paid to the Revenue instead.

SUMMARY

These are the details that nobody thinks about when they are planning a pension, nor why should they. It's really only in times such as these that it becomes considerably more important. Everyone, at least should know what type of pension that they have, whether or not it has been preferred or assigned as collateral and most importantly whether or not there is a forfeiture clause. These are the essentials.

A pension is in place to ensure that you have a reasonable standard of living after your retirement. At least this is what we all believe. As the future remains so uncertain in Ireland, it is more important that you have the right type of pension in place and seek the necessary advice.
Were you to be declared bankrupt, a personal pension is liable to attack by your creditors. If you hold an occupational pension, on maturity any lump sum payment can be at risk and possible ongoing attachments to income based on your living expenses.

If you require any further information please contact GDP Partnership

Better to be safe than sorry!