Feathering the nest egg
Along with the purchase of a house, a pension may be the largest investment a person will make in their lifetime – in terms of both money and timespan. Keith Blizzard and Patrick Ambrose review important case law.
Pensions have featured in the news frequently in recent years, mainly in the context of the pension deficits of large employers, and strains on public-sector finances caused by increased life expectancy. Enhanced regulation from the European Union, as well as domestic reform, shows decision-makers responding to the challenges of providing for retirement in the modern era.
The Irish courts have heard a number of cases that demonstrate these challenges, and their judgments have provided clarity on many complicated issues relating to workplace pensions and entitlements to State pensions.
Understanding the basics
In the case of a workplace pension, payments into a pension fund are consid-ered deferred remuneration, per the 2005 decision of Kelly J in In the matter of Central Remedial Clinic Pension and Death Benefits Plan. The payments were not a gift from an employer – the employee had worked for those contributions and had given consideration for them.
Conditions may be placed on pensions entitlements, including a minimum retirement age or a required number of contributions. Meagher v Minister for Social Protection (2014) and Galvin v Chiefs Appeals Officer (1997) are examples of individuals disputing their entitlement to State pensions based on the number of contributions made.
Occupational pension-scheme members have rights to equal treatment enshrined in the Pensions Act 1990, and entitlements of civil partners have been extended under the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010.
While pension trustees have discretion in their decision-making, the pension-scheme documentation is the principal source of rights and obligations. Pension schemes are often structured as trusts, to which many of the principles of the law of trusts and equity can be applied.
The courts have ruled in the Central Remedial Clinic decision, Greene v Coady (2014) and Holloway v Damianus BV (2015) that there are no special rules of construction for pensions documentation.
Age of retirement
For private or occupational pensions, the age of retirement is not prescribed by legislation, which has led to a number of disputes about the right to continue in employment or to receive pension benefits.
Although the age of retirement in the context of receipt of the State pension is clear, the 2007 decision in the European case of Felix Palacios de La Villa v Cortefiel Servicios SA determined that a national retirement age was only consistent with EU law where the age was objectively and reasonably justified in the context of national law by a legitimate aim relating to employment policy or the labour market – and that the means put in place to achieve that aim of public interest were not inappropriate and unnecessary for that purpose.
Cases in the courts have revealed very mixed practices by Irish employers, such as Patrick Reilly v Drogheda Borough Council (2008), where a collective agreement between the defendant council and trade unions as to the age of retirement was found not to be binding on the plaintiff employee.
Coonan v Attorney General, Ireland (2001) declined to find that the previous practice of extending the service of an employee in a particular role beyond the age or retirement created a legitimate expectation that the same would be done in the case of the plaintiff.
In McCarthy v Health Service Executive (2010), the court concluded that an employee must have known that the retirement age of 65 was ubiquitous for the Health Service Executive, notwithstanding that she was never provided with a contract of employment.
In Quigley v Health Service Executive (2017), however, an employee was found to have had a contract of indefinite duration, and was not subject to the mandatory retirement age.
Disputes about retirement also arise in the Labour Courts and in the context of equality legislation.
Personal asset
Pensions can be treated as an asset in an individual’s insolvency or divorce, although the 2012 case of EBS Building Society v Thomas Hefferon and Michael Kearns highlighted an important point that a person must have a legal or beneficial interest in the pension fund for a claim to be made or a form of attachment sought.
In that case, the High Court declined to grant an attachment order by way of equitable execution over the pensions of the defendants on the basis that the defendants, at the time of the proceedings, had no legal or equitable interest in the pensions.
The 2017 Christopher Lehane case considered the Insolvency Act 1988 (as amended), and the distinction between an entitlement to assets of a pension fund against an entitlement to receive pension payments in the context of section 44A of that act, concluding that the official assignee was entitled only to the right to payments due to the bankrupt, and not to the fund assets directly.
In MP v AP (a 2005 divorce hearing), O’Higgins J set out the principle that the courts should have regard as to whether reasonable financial provision exists for a spouse in a divorce before it made an order for a pension adjustment.
‘Objectionable behaviour’
The Irish courts have not supported the loss of a person’s pension due to a criminal conviction or other objectionable behaviour. In the case of Jeremiah Lovett v Minister for Education, Ireland and the Attorney General, the High Court held in 1997 that a provision in the Teachers Superannuation Act 1928 that allowed a teacher’s pension to be forfeit on conviction of a criminal offence was ultra vires, since it amounted to a penalty for criminal behaviour that was beyond the scope of that legislation.
In PC v Minister for Social Protection, Ireland and the Attorney General, the Supreme Court held in 2007 that a prisoner’s pension entitlement could not be removed, noting that the State could not operate a disqualification regime that applied only to convicted prisoners, which constituted an additional punishment not imposed by a court.
In the context of divorce, the courts may – but likely would be slow to – import a financial penalty for a party’s conduct during a marriage into the final settlement: see DT v CT.
The question of whether a pension entitlement is a ‘property right’ protected by the Constitution has not been finally answered, although it has been considered in a number of cases, with differing judicial conclusions.
Although membership of a pension fund bestows well-established legal rights on pension-fund members, the members remain vulnerable to a reduction in their present or future pension payments where the fund suffers a shortfall or an employer’s insolvency.
In the aftermath of the 2008 financial crash, there were a number of examples of the State seeking to apply such reductions, which were challenged in the courts.
In Unite Union and Paul Gallagher v Minister of Finance, Ireland and the Attorney General, members of the Central Bank’s pension scheme unsuccessfully challenged such a reduction imposed by the Minister of Finance, despite having established that there was no central government contribution to the scheme.
In Garda Representative Association v Minister for Finance, the plaintiff unsuccessfully challenged emergency legislation that reduced employer pension contributions.
In the private sector, in Scraggs v Pensions Board, a former employee of Bank of Ireland complained unsuccessfully about the imposition of stamp duty on the company pension scheme.
In Holloway v Damianus BV, the plaintiff trustees succeeded in their action to force a struggling employer to increase its settlement offer to fill the shortfall in the employee pension scheme.
Pension trustees
The duties applying to pension trustees are similar to those applying to trustees generally, albeit that the Pensions Act 1990 and associated regulations contain specific stipulations. These include the duty to act in good faith, to exercise discretion, to treat beneficiaries equally, to safeguard assets, and not to profit personally.
Depending on the fund documentation, pension trustees will hold discretionary or decision-making powers. The exercise of these powers was considered in the important case of Greene v Coady, which related to decisions by the pension trustee of an under-funded pension scheme of an Irish company, which were challenged by the pension-fund members.
Charleton J considered the role of the court in interfering in a decision by pension-fund trustees, concluding that the court should not substitute its views for those of the trustees, but rather consider the matter from their point of view and the evidence that was available to them, before deciding whether their decision was outside of the range of what a reasonable body of trustees could have decided.
Regulation of the industry
The Pensions Act 1990 is the central piece of legislation in Ireland, establishing the Pensions Authority as the regulatory authority. The EU Directive on Institutions for Occupational Retirement Pensions (IORP II) recently added obligations such as fit and proper standards for trustees and enhanced reporting to scheme members.
The Pensions Authority has used its powers to bring prosecutions, particularly in the case of non-remittal of employers’ pension contributions.
The Financial Services and Pensions Ombudsman has significant powers to adjudicate complaints from pension-scheme members and to order rectification or sanctions.
The ombudsman’s entitlement to jurisdiction of complaints involving the reduction of pension entitle-ments was considered in Minister for Public Expenditure v Pensions Ombudsman (2015), and in Willis v Pensions Ombudsman (2013).
The Government’s Roadmap for Pensions Reform 2018-2023 further addressed longer-term issues, such as extension of the age of retirement for State pensions, automatic enrolment, and issues relating to employment gaps.
There clearly remains much work to be done for policymakers to meet the challenges of provision in retirement.
But while clarity in policy is welcome, pensions remain complex instruments in a complex area of law: understanding the available judicial guidance is, therefore, an essential to all those involved in this industry.
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Keith Blizzard and Patrick Ambrose
Keith Blizzard is a director at Johnson Hana Inc and a barrister. Patrick Ambrose is a solicitor and head of legal (Europe North) at DLL Group, a wholly owned subsidiary of Rabobank. The authors’ new work, Casebook of Irish Financial Services Law – Pensions (2022), is published by Lonsdale Law Publishing.