In a recent decision of the Commercial Court, Mr Justice Peter Kelly appointed a receiver over the Approved Retirement Fund (“ARF”) of businessman Brendan Murtagh. This judgment is highly significant not just because it was the first time a receiver had been appointed over an individual’s pension fund, but also because it has highlighted the risks associated with having an ARF type pension.
ARFs were introduced in 1999 as an alternative to buying an annuity at retirement and were seen as having two major advantages over other pension types. Firstly, ARFs offer extra flexibility as the fund is essentially self administered so the owner can choose how to invest their money. In addition, ARFs allow the individual to draw down funds as and when required and also allow the transfer of capital to an individual’s estate after death, unlike an annuity which usually ceases on the death of the individual.
Currently ARFs are available only to certain classes of individuals, typically the self-employed and proprietary directors; however the Government’s National Pensions Framework, launched in March of this year, has recommended that the ARF option should be made available to a much wider group of people in the future.
Pension schemes are usually set up under trust and while it is possible for creditors to gain control over the income being paid out from schemes set up in this manner they cannot gain access to the capital in the fund. An ARF however, is the personal property of the individual and is not covered by the protection of trust law; therefore, creditors of an individual can seek access to the capital.
ARFs can be viewed as a double edged sword, especially in the current economic climate. For many, the flexibility over how the fund is invested and the ability to transfer the balance of the fund into the individual’s estate is enticing. However the Murtagh decision shows that such freedom may come with a high price. The prospect of losing a substantial nest egg, valued at upwards of €800,000 in Mr Murtagh’s case, may well act as a deterrent for many from investing in this type of fund in the future.