Family Law Association of Ireland
Pensions & Family Law - Problems
and Pitfalls
Paul Kenny
Pensions Ombudsman
Pension Provisions of the Family Law
Acts
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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
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Are pensions traded off against
other assets?
Do parties realise the real value of
pensions?
If PAOs to be applied for…
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PAOs will have to be applied for,
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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
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Public servant, salary €50,000
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When 40 years completed, pension 25K,
gratuity 75k, Spouse 12.5k plus post
retirement increases
Official value then (65), about €600k
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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….
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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
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(If he became Sec. Gen., 50% of half
his pension is worth €1.24M)
Alternative Asset
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Perhaps, a house?
Assuming no mortgage:
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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
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Occupational Pension Scheme per
Pensions Act 1990
Retirement Annuity Contract (personal
pension)
RAC under Trust
Approved Policy (“buyout bond”)
Any other scheme or arrangement
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Designed to provide benefits
 on retirement, leaving, cessation of
employment
 for widow/er, dependants or other persons, on
death
Occupational Pension Scheme
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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
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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
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Unless effected under trust
 S. 235 (4) ITA 1967, s. 784(4) TCA 1997
Approved Policy (buyout bond)
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Effected with a provider by trustees
of Occupational Pension Scheme
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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….
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PRSA (personal Retirement Savings Account)
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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
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DEFINED BENEFIT[DB] AND DEFINED
CONTRIBUTION [DC]
defined benefit
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makes a promise of benefits, usually expressed as
fraction of final salary [also called "final salary"
schemes]
cost not determined in advance
defined contribution
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makes no benefit promise, only contribution
whatever that buys is the benefit
cost known and fixed
DB or DC
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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
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and may be made to main scheme or to
legally separate arrangement
Buyout bonds DC with rare exceptions
Arrangements not defined in the Act
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“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
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Self-administered so called to distinguish
from traditional insured vehicles – means
“directly invested”
“Small self-administered schemes” a
special category
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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
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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….
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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
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Spouses’/children’s scheme separate:
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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
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Requirement to give particulars of
property- including pension rights
General information on pensions:
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Scheme name or other identification
Member name
Date first covered
Pensionable pay / calculation
AVCs details
Rights transferred into scheme
Information from the Trustees - DB
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Calculation of each element of
retirement benefit- as if leaving
service
Method/s of calculation
Date/s payable
Provision for Increase?
Actuarial value
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Solvency caveat
Information from the Trustees - DC
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Accumulated value of fund
Date/s payable
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Explanation of how fund translates to
Retirement Benefit
Information from the Trustees –
Contingent benefit
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Calculation of amount of each
element of DB
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Assuming death of member spouse
Specify scheme rule or policy number
Method/s of calculation
Trustees
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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
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50/50 if no Order
Trustee may apply to Court to
recover costs from benefits
Order served on Trustees
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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...
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PAOs can be affected by later events….
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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
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* Similar requirements for Trust RACs SI 182 of
2007
The Prudent Trustee
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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:
2003-07: 11 in total;2008: 12; 2009:16;
2010 to August: 14
Most problems have yet to surface!!
Problems with PAOs
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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…
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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
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Non-member spouse may find it
hard to get information
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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….
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The Acts were not drafted by
pensions people
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Unforeseen consequences, e.g., death
of non-member spouse
Public service issues
Office of the Pensions Ombudsman
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36 Upper Mount St, Dublin 2
Phone 01 647 1653
Fax 01 676 9577
E-mail info@pensionsombudsman.ie
Web www.pensionsombudsman.ie