What happens to a person’s pension is always a matter for concern when they get into financial difficulties. This can be further complicated by financial difficulties which might result in bankruptcy.
When someone goes into bankruptcy, as a general rule, all assets owned by the bankrupt vest in the Official Assignee in Bankruptcy. As a counterbalance to that, all debts owed by the bankrupt are written off. The job of the Official Assignee is to liquidate all assets for the benefit of the creditors.
- The general rule that all property vests in the Official Assignee does not apply in the case of pensions.
- The general rule in the case of Pension Benefits is that they do not vest in the Official Assignee.
This general rule for Pensions is however subject to exceptions.
- Any income payments received or entitled to be received before adjudication are available for the bankruptcy.
- The underlying pension fund remains with the bankrupt.
This area came up for analysis in a recent High Court case – in re Cody [2017] IEHC 653.
In this case, the bankrupt had a Pension but had not drawn down in his pension. Because he has reached his retirement age, he was entitled to take a tax-free lump sum and various other options on the balance –an annuity, taxable cash, a retirement fund [ARF], trivial pension payment or transfer to another provider.
The court had no difficulty in deciding that any pre-adjudication payments were available for the bankruptcy and this included any payments which became due prior to the bankruptcy but hadn’t on the date of bankruptcy been paid. [Payments that were in the post!].
The important issue for decision was who would benefit from the lump sum payment and who would benefit from an annuity payment out of the residue – the bankrupt or the Assignee in Bankruptcy!
There was a side issue, the court decided that the Official Assignee was entitled to exercise or activate the options under the Pension Plan if they were exercisable during the bankruptcy.
The court decided:
- that the underlying fund remained with the bankrupt.
- That any pre-adjudication income payments vested in the Assignee in Bankruptcy.
- That any income paid as a result of the exercise of the option remains with the bankrupt.
- That any lump sum paid as a result of the exercise of the option would vest in the Assignee in Bankruptcy.
In any bankruptcy where the bankrupt has income available over and above their needs, the Assignee in Bankruptcy would normally apply for, what is termed, an income payment order – which obliges the bankrupt to pay part of his income to the Assignee in Bankruptcy for a period of 3 years.
It is worth noting that in this case the Assignee in Bankruptcy did not apply for an income payment order prior to the discharge of the bankrupt. His argument was that any pension payments by way of annuity should be automatically vested in him.
However, because the judge took the view that such income was the income of the former bankrupt unless the Assignee in Bankruptcy had an income payment order the former bankrupt was entitled to retain such income.
