Are Pension Adjustment Orders enforceable on transfer to master trust?
The implementation of the European Union (Occupational Pension Schemes) Regulations 2021 (the “IORP II Regulations”) has led many standalone defined contribution (“DC”) schemes to wind up and transfer to a master trust. Under a master trust arrangement, compliance with the IORP II Regulations and scheme management are managed by one master trust trustee in respect of multiple employer sub-arrangements or sections. The value of members’ retirement accounts is transferred out of their original employer occupational pension scheme into the new master trust arrangement. This transfer from the original scheme into the master trust has created some unexpected issues, particularly in relation to pension adjustment orders (“PAO”) that had been made in favour of non-member spouses in respect of member benefits in the original occupational pension scheme.
A PAO is an order made by a Court following divorce, judicial separation or dissolution of a civil partnership, directing a specific amount of pension benefits to be paid to the member’s former spouse, civil partner or dependent child. However, these orders would have been made by the Court in relation to the original pension scheme and served on the original scheme trustees. This creates a question as to whether master trust trustees are in a position to administer the requirements of these orders and the benefits specified under them. Some master trust providers have indicated that they are not in a position to administer benefits on foot of these orders under the new master trust, creating a concern for beneficiaries of these orders (generally former spouses or civil partners of pension scheme members).
This issue is currently being discussed between the Law Society of Ireland and the Pensions Authority, who are seeking to have it resolved as soon as possible. It is hoped that legislation will be introduced to deal with this matter sooner rather than later to avoid any unforeseen consequences of transfers to master trust arrangements. If you are an employer or trustee looking to transfer your current arrangement to a master trust, please contact the Arthur Cox pensions team who would be happy to assist in considering the legal aspects, including in relation to PAOs, of such a transfer.
“The Law Society has alerted the Pensions Authority and practitioners to the serious effect of new EU pension legislation on death-in-service benefits for former spouses.” The Law Society of Ireland