A UK judge has provisionally ruled that an Irishman who moved to the UK should have his pension protected from bankruptcy due to EU freedom of movement rules.
In a High Court case last week (January 23), the judge found that an Irishman who came to live and work in the UK after making a substantial contribution to an Irish pension, should have the same level of protection on his pension that UK nationals have when going through bankruptcy.
Michael McNamara was made bankrupt on November 2, 2012 putting his pension at risk of being used in the bankruptcy proceedings.
In July 2009, Mr McNamara and his wife set up a company called Simcoe Industries.
This company set up a pension scheme, the Simcoe Industries Limited Retirement Plan, which had management consultancy Marine House as pensioner trustee and Mr and Mrs McNamara as additional trustees.
In August 2011, the trustees of the Simcoe scheme made certain payments to Mr McNamara before he was declared bankrupt in November 2012.
The joint trustees of Mr McNamara’s bankruptcy attempted to claim the investments held by Mr McNamara’s pension to use in the bankruptcy proceedings.
They argued the benefits remained with Mr McNamara at the time of his bankruptcy and were therefore part of his estate.
But Mr McNamara argued the pension scheme should be excluded from the bankruptcy estate.
He argued that if instead of being a member of an Irish pension scheme he had been a member of a UK registered pension scheme his pension would have been excluded from the estate, and EU law required the same treatment to be afforded to both.
Mr Justice Nugee found the differential treatment between pension schemes would not be allowed under EU law and so this case should be referred to the European Court of Justice.
He said that UK law should be read as if it extended to include a pension scheme established in an EU member state other than the UK.
Mr Justice Nugee said: “In the present case the answer to the question whether the impact of insolvency on pension rights is within the scope of Art 49 is self-evidently a matter of EU law and is in my judgment critical to the decision of this court and hence the jurisdictional criterion is therefore satisfied.
"Nor is this a case where there is an established body of case law that can easily be transposed to the facts of the case, or one where the question turns on a very narrow point dependent on a specific set of facts, where the ruling is unlikely to have any application beyond this case.
“In those circumstances I have decided that it is appropriate to make a reference to the CJEU to seek a preliminary ruling on this question.”
According to consultancy LCP, in the UK when an individual becomes bankrupt a trustee in bankruptcy is appointed and under UK insolvency law all assets to which the bankrupt is entitled pass automatically to the trustee.
But the Welfare Reform and Pensions Act 1999 excludes from the bankruptcy estate the rights of a bankrupt under an “approved pension arrangement” and this includes rights under any UK pension scheme that has been registered with HMRC.
As the pension scheme was Irish and not UK-registered, it could be argued that it should be treated as an unapproved scheme for which there is limited protection, despite the scheme being approved by the Irish tax authorities.
David Everett, partner at LCP, said: “This case was decided by reference to Article 49 of the Treaty on the functioning of the EU, which is concerned with the freedom of movement of individuals around the EU.
“It is interesting to speculate how this case might have been decided had it been brought after the end of the UK’s implementation period, as there may not then be a need to ‘conform’ the UK legislation with the possible result that the individual in question could lose his pension rights to the trustees in bankruptcy.”
amy.austin@ft.com
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