Family Law Association of Ireland Pensions & Family Law - Problems and Pitfalls Paul Kenny Pensions Ombudsman

Pension Provisions of the Family Law Acts  designed to allow distribution of pension to “other spouse”  pensions last in line - other property first  all forms of pension included - occupational, AVCs, self-employed, buyout bonds, etc.

PAOs do not seem to be as common as value of assets implies  Are pensions traded off against other assets?  Do parties realise the real value of pensions?

If PAOs to be applied for…  PAOs will have to be applied for, for each scheme, and for each type of benefit Therefore essential to be able to identify and understand what is there

Example of pension value  Public servant, salary €50,000 When 40 years completed, pension 25K, gratuity 75k, Spouse 12.5k plus post retirement increases Official value then (65), about €600k  Open market annuity cost more like €800k At age 45, has “earned” about half of that – value at 65 about 300k. Actuarial value declared is c. €113k discounted at 5%, €93k at 6%

That’s not the full picture….  The transfer value is the present value if the asset is taken out of the scheme  If it’s left where it is, it benefits from future pay increases, promotion etc (though not future service)  Potential value may be enormous (If he became Sec. Gen., 50% of half his pension is worth €1.24M)

Alternative Asset  Perhaps, a house?  Assuming no mortgage: Value in 2007, €600,000 Value today, €400,000 Value at 65?  But house is immediately disposable asset, pension is not

Types of pension arrangement covered by the Act  Occupational Pension Scheme per Pensions Act 1990  Retirement Annuity Contract (personal pension)  RAC under Trust  Approved Policy (“buyout bond”)  Any other scheme or arrangement Designed to provide benefits  on retirement, leaving, cessation of employment  for widow/er, dependants or other persons, on death

Occupational Pension Scheme  Occupational Pension Schemes may be Statutory – set up by or pursuant to public statute, by Ministerial Order  If not statutory, must be constituted under irrevocable trusts

Retirement Annuity Contracts  Contract between member and provider ( s.235, ITA 1967, s.784 TCA 1997 )  Normally effected by self-employed  Open to anyone in non-pensionable employment  Personal property of member Unless effected under trust  S. 235 (4) ITA 1967, s. 784(4) TCA 1997

Approved Policy (buyout bond)  Effected with a provider by trustees of Occupational Pension Scheme On leaving service Or as a result of winding-up Or by transfer resulting from a PAO  Contract is direct liability of provider to Member

Any other arrangement….  PRSA (personal Retirement Savings Account) Very like RAC, but never under trust Personal property of holder  Annuity, immediate or deferred  Unfunded promise Some things don’t look like pension schemes: e.g., Retained Fire Officers’ Gratuity scheme

Two types of Pension Scheme  DEFINED BENEFIT[DB] AND DEFINED CONTRIBUTION [DC]  defined benefit makes a promise of benefits, usually expressed as fraction of final salary [also called "final salary" schemes] cost not determined in advance  defined contribution makes no benefit promise, only contribution whatever that buys is the benefit cost known and fixed

DB or DC  Occupational schemes may be DB, DC or both  RACs are always DC  PRSAs are always DC  Additional Voluntary Contributions (AVCs) may be DB (rare) or DC and may be made to main scheme or to legally separate arrangement  Buyout bonds DC with rare exceptions

Arrangements not defined in the Act  “Target” benefit: always DC  “Hybrid” schemes –usually a combination of DB and DC - may have to be treated for PAO purposes as two different schemes  This may also happen in DB scheme with DC AVC arrangement under the same trusts NB: If any element of DB present, legally DB

Self-Administered Schemes  Self-administered so called to distinguish from traditional insured vehicles – means “directly invested”  “Small self-administered schemes” a special category Pensioneer trustee Now almost all one-member arrangements They are the only schemes allowed to borrow Watch net asset values, gearing/borrowing, liquidity

The Public Sector  Although Public Service benefit patterns are broadly similar, lots of differences of detail between schemes: e.g., Local Government, Civil Service, Semi-States, Health service (3 main schemes); Defence Forces, Judiciary, etc etc.  All have separate schemes for Spouses’ and Children's benefits  Separate (Union-sponsored) schemes for AVCs may also exist

In the Public Service….  You may need up to six separate elements in a PAO  Main scheme: covers retirement pension for member and lump sum (gratuity at retirement or death): pension and retirement gratuity are retirement benefits  Death gratuity is contingent benefit

Public Service –cont’d  Spouses’/children’s scheme separate: Death-in-Service pensions contingent; Pensions separate for spouse/children Children’s pensions double on spouse death Non-marital children benefit Death-in-Retirement benefit is retirement benefit  If separate AVC scheme exists, benefits are both retirement and contingent  Careful: Some older schemes may have non-standard rules

Information Required - General  Requirement to give particulars of property- including pension rights  General information on pensions: Scheme name or other identification Member name Date first covered Pensionable pay / calculation AVCs details Rights transferred into scheme

Information from the Trustees - DB  Calculation of each element of retirement benefit- as if leaving service  Method/s of calculation  Date/s payable  Provision for Increase?  Actuarial value Solvency caveat

Information from the Trustees - DC  Accumulated value of fund  Date/s payable Explanation of how fund translates to Retirement Benefit

Information from the Trustees – Contingent benefit  Calculation of amount of each element of DB Assuming death of member spouse Specify scheme rule or policy number  Method/s of calculation

Trustees  May make representations to the Court  Are entitled to expenses, costs incurred in complying with a PAO or a direction of the Court  Costs payable by parties 50/50 if no Order  Trustee may apply to Court to recover costs from benefits

Order served on Trustees  To be served by Registrar or Clerk of the Court.  Member record must be tagged by trustees to show existence of PAO

The need to record...  PAOs can be affected by later events…. death of the beneficiary death of dependant or cessation of dependency death of the member spouse leaving service early retirement - ill-health or normal health transfer of benefits  Records must highlight that PAO exists, so that appropriate action is triggered

Disclosure requirements cover… Regulation 17 and Schedule G of Disclosure Regulations SI 301 of 2006*  Request for Information on Designated Benefit  Receipt of a PAO  Defined Benefit Scheme  Defined Contribution Scheme (or section)  Retirement – early, normal, late  Death before/after: member, spouse, child dependant  Termination of relevant employment  Notification to the Court * Similar requirements for Trust RACs SI 182 of 2007

The Prudent Trustee  Does not accept PAO at face value  Tests for feasibility of implementation  Cost of review –can be expensive  Not paid from scheme funds  Queries to us on PAOs more common: : 11 in total;2008: 12; 2009:16; 2010 to August: 14  Most problems have yet to surface!!

Problems with PAOs  Sometimes drafted on back of envelope  No resemblance to what the Notice of Motion asked for  Specified percentage and period not clear  When an order is not an order…  “Sorted if he dies, before or after retirement” (but not if he lives to collect his pension)  Was the PAO actually served?

More problems…  Public Service “old” schemes – second spouse not covered if remarriage after retirement  Divorce Decree referred to pension - not a PAO; real PAO referred to S&C scheme – trustees confused  Order referred to Retirement Benefits – intention was only death-in-retirement – ex parte application, new PAO  Affidavit of Means - “Not in receipt of…”

And More  Non-member spouse may find it hard to get information Insurer/broker/client relationships Client (employer/trustee may be member spouse)  Irish member of UK scheme – PAO not enforceable under UK statutory regime  Transfer/clean break if scheme insolvent?

And finally….  The Acts were not drafted by pensions people Unforeseen consequences, e.g., death of non-member spouse Public service issues

Office of the Pensions Ombudsman  36 Upper Mount St, Dublin 2  Phone  Fax   Web