# Treatment of Public Service Pensions: Bankruptcy Act



## Gearoid66 (26 Oct 2016)

From the Bankruptcy Act 1988:
"Where a bankrupt has ... a relevant pension arrangement which would, *if the bankrupt performed an act or exercised an option,* cause that debtor to receive ... an income ... that bankrupt shall be considered as being in receipt of such income, and such amount of money shall vest in the Official Assignee or the trustee in bankruptcy.

Subsection (2) applies where the bankrupt ...*will become entitled within 5 years of the date of the adjudication to perform the act or exercise the option* referred to in subsection (2)."

I am a public servant.
Can somebody please explain what is meant by "performed an act" or "exercised an option" as used above.
For instance, if I "exercised an option" to retire at 55, I would be entitled to a lump sum and pension.
Would this"option" to retire be one of the "options" referred to in the above legislation?

Even if I choose not to retire, *the fact that I could have * means I am caught by the legislation???


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## Jim Stafford (26 Oct 2016)

It is difficult to provide advice on the inter action of pensions and bankruptcy because there has been no case law on how to interpret the legislation since it was amended.

The Official Assignee does treat Private Pensions and Public Pensions differently.  For example, in calculating the Income Payments Order for private sector employees he does not allow any contributions to a pension plan, whereas a public sector worker is allowed to maintain their contributions (presumably on the basis that the pension contributions for public sector employees are deducted pursuant to Statute.)

All of the banks are very much aware of the tax free lump sum that public service workers receive upon retirement, and they invariably target such payments.

Whilst the OA believes that he can claim a lump sum on a private sector pension scheme if he can exercise the "option", I understand that he cannot "force" a public sector worker to retire early, so that he does not have the same ability to exercise that option in respect of public service workers.  What appears to be clear is that if a public sector bankrupt is obliged to retire within 5 years, that the OA would certainly claim the lump sum.

The protection of the lump sum is a motivating factor for some people to elect for bankruptcy well in advance of their "option" date.

It will take some High Court cases to clarify the area.  For example, I know of one case where a discharged bankrupt has threatened to sue the trustees of his pension scheme if they release any monies to the OA, on the basis that he needs the pension monies to pay his mortgage, and that if his mortgage is not paid he would become homeless. Trustees have a very high duty of care! 

Jim Stafford


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## elacsaplau (26 Oct 2016)

Jim Stafford said:


> The Official Assignee does treat Private Pensions and Public Pensions differently.  For example, in calculating the Income Payments Order for private sector employees he does not allow any contributions to a pension plan, whereas a public sector worker is allowed to maintain their contributions (presumably on the basis that the pension contributions for public sector employees are deducted pursuant to Statute.)



Very interesting, as ever, Jim

Would you mind elaborating on this particular section please?


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## Gearoid66 (26 Oct 2016)

Similar situation in UK. Blog by Coventry View.

Google:  *horton-v-henry-the-final-round   *(I can't post link yet -  sorry)

"And the result was an emphatic win for the preservation of the pension against the attempts by the Trustee in Bankruptcy to get at it."


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## Jim Stafford (26 Oct 2016)

elacsaplau said:


> Would you mind elaborating on this particular section please?



In brief, If the OA is calculating an Income Payments Order for a public sector employee, he will allow the employee to continue contributing towards their pension, whereas he will not allow a private sector employee to continue contributing towards their pension.

Gearoid66, many thanks for mentioning the _Horton v Henry_ decision.  I had not realised that the UK Court of Appeal has just issued its judgment. The long awaited Court of Appeal’s decision in _Horton v Henry_  has clarified two conflicting lines of UK case law, holding that an “income payments order” (sought by a trustee in bankruptcy over a bankrupt’s income) cannot extend to an as yet unexercised right to draw a pension. Even where a bankrupt is able to demand immediate payment of an uncrystallised pension, a trustee in bankruptcy cannot compel them to do so and their undrawn pension assets remain “safe” from creditors. 

As I mentioned above, it will take an Irish High Court case to provide guidance over here, as we do now have substantially different legislation from the UK  However, we still have the fundamental conflict between Pension legislation and Bankruptcy legislation.

Jim Stafford


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## Gearoid66 (26 Oct 2016)

Thank you Jim.

Notwithstanding the fact that we have "substantially different legislation" (not that I know the difference) do you think it's likely the position here will be influenced in any way by the UK decision?
(I know it would be pure speculation)


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## elacsaplau (26 Oct 2016)

Jim Stafford said:


> In brief, If the OA is calculating an Income Payments Order for a public sector employee, he will allow the employee to continue contributing towards their pension, whereas he will not allow a private sector employee to continue contributing towards their pension.



Thanks Jim

What I really want to know us what happens in a private sector employment where membership of the occupational pension scheme is a condition of employment?


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## Silvio Dante (28 Oct 2016)

Sec 44a(2) should never have been inserted into the 2012 amendments of the Bankruptcy Act as it goes entirely against the intention of the amendment which was to keep pension income out of bankruptcy.
As Jim has said this is proving a real headache for trustees who are very worried about being sued if they release proceeds.

It is also deeply discriminatory
Private sector worker loses his job and is forced to take out a PRB, goes bankrupt, he hits age 50 and the OA says hand it all over.
So loses both his salary and his pension.
Public Sector worker still in his job but goes bankrupt, keeps his entire pension.
Keeps both his salary and pension.

Does anyone even know whether the OA has been successful in many (any?) cases to date?
I suspect they haven't.

It's a quagmire and needs to be stripped out of Act otherwise it will be in and out of Courts for years.


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## Silvio Dante (28 Oct 2016)

Question:

Bankrupt aged 50 with no income
Has a pension valued say 300k that can provide him with an income of say 5k per annum 

What does OA do?
Can he take the 300k and leave the bankrupt without any current or future retirement (or any other type) income?


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## breakonthru123 (29 Oct 2016)

Jim Stafford said:


> ..If the OA is calculating an Income Payments Order for a public sector employee, he will allow the employee to continue contributing towards their pension..
> Jim Stafford



What's the OA's POV if a public sector employee is making additional pension contributions via -
a) an AVC

or alternatively

b) 'buying back' Notional Years of Service'?

Thanks for any comment on the above,
Breakonthru


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## breakonthru123 (29 Oct 2016)

Silvio Dante said:


> Question:
> 
> Bankrupt aged 50 with no income
> Has a pension valued say 300k that can provide him with an income of say 5k per annum
> ...



Hi Silvio,

Any info on this page help? 
[broken link removed]

Cheers,
Breakonthru


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## Silvio Dante (30 Oct 2016)

breakonthru123 said:


> Hi Silvio,
> 
> Any info on this page help?
> [broken link removed]
> ...



Hi,

Thanks but cannot open link


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## Jim Stafford (7 Nov 2016)

Gearoid66 said:


> Notwithstanding the fact that we have "substantially different legislation" (not that I know the difference) do you think it's likely the position here will be influenced in any way by the UK decision?



A decision of the UK Court of Appeal would certainly be considered by the Irish Courts.



elacsaplau said:


> What I really want to know us what happens in a private sector employment where membership of the occupational pension scheme is a condition of employment?



The OA would review the bankrupt's terms of employment and assess whether it was absolutely necessary for pension contributions to be kept up.  I imagine the OA would argue that the bankrupt could still be  a member of the occupational scheme, but that he would not be making contributions for a three year period.

Jim Stafford


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## breakonthru123 (11 Nov 2016)

Hi Silvio,

That link was - [broken link removed]

Hope it works now.


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## Silvio Dante (11 Nov 2016)

breakonthru123 said:


> Hi Silvio,
> 
> That link was - [broken link removed]
> 
> Hope it works now.


Works fine and thanks
Good article but I fear it was written pre 2012 Personal Insolvency act that included the troublesome clause on option.


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