ARF pension vehicle puts Murtagh's funds at risk
ATTEMPTS by creditors of former Kingspan boss Brendan Murtagh to get control over the funds in his pension show the dangers of putting your retirement fund into an Approved Retirement Fund (ARF), Pensions Ombudsman Paul Kenny said yesterday.
Creditors cannot gain access to the funds in a regular pension, which is usually set up as a trust, but they can gain access to funds in ARFs, Mr Kenny warned.
Businessman Brendan Murtagh lost a High Court battle on Wednesday to retain funds worth up to €1.2m towards "living expenses". The case involved investors who are pursuing him for a €28m debt.
A receiver has been appointed over the Brendan Murtagh Approved Retirement Fund, which has a value of up to €831,000, the court heard.
But the ombudsman, Mr Kenny, warned people that it was clear from the case that, because an ARF is the personal property of the individual, and is not covered by trust law, it can be claimed by creditors when a person is insolvent.
Defined-benefit pensions are set up as trusts, while definedcontribution schemes are essentially organised as trusts by the life companies that sell them.
An ARF is a tax-exempt investment plan that can be invested in a range of products to provide for your retirement needs. To qualify you must have a pension or an annuity of at least €12,700 a year.
ARFs are currently not available to people with defined-contrition pensions, holders of retirement-annuity contracts, PRSAs, proprietary directors and individuals entitled to rights arising from additional voluntary contributions paid to a scheme.
But the National Pensions Framework, launched by the Government last month, recommended that, in future, the ARF option should be available to all.
The recommendation in the pensions framework means it is likely that the specified income limit required to avail of the ARF option will be increased to €18,000 per annum.
Mr Kenny warned: "With an ARF you have no protection over the capital. The legal owner of the capital in an ARF is the individual and not the trustee."
It is possible that creditors could gain control over the pensions income being paid out from a scheme, other than an ARF, but not the capital in the fund, Mr Kenny added.
Recent changes to tax legislation have impacted the way ARF's are taxed. Now, even if there is no drawdown of income from the ARF, a tax liability will be assessed each year on an assumed drawdown value.
The major benefit of an ARF over an annuity contract is the ability to transfer capital to an individual's estate after the death of the retiree, pensions experts said yesterday.
Unlike an annuity contract, which ceases upon the death of the retiree (unless purchased with a guaranteed term), the balance of the ARF is passed on to the deceased retiree's estate.