The Law Society has told the Pensions Authority and legal practitioners that there will be serious knock-on effects from new EU pension legislation on death-in-service benefits for former spouses.

This is a result of increased compliance and governance obligations for trustees of occupational pension schemes arising directly from the implementation of the European 'IORP II' Directive by The Pensions Authority.

A large-scale and market-wide movement of private-sector, defined-contribution occupational pension schemes to Master Trusts is currently underway.

Master Trusts overseeing multiple pension schemes spread compliance and cost risks across all of the participating employers.

Death-in-service anomaly

No payment will be made to the beneficiary of a Contingent Benefit Pension Adjustment Order on the death in service of a member of a scheme that has moved to a Master Trust, as matters currently stand.

The potential financial loss to such a beneficiary may be in the region of several hundred thousand euro (depending on the value of the contingent benefit), the Law Society has warned.

Court orders in family-law divorce and separation cases, requiring death-in-service payments to be made to the surviving ex-spouse or dependant family members, cannot be enforced given that the order relates to the original pension scheme – and not the new master trust.

There is a short timeframe under which such orders can be varied by the courts, hence the urgency.

Emergency legislation sought

The Law Society believes that the issue is of such severity that emergency legislation is required.

The Society has engaged constructively with the Pensions Authority to discuss the issue, and has proposed a potential solution to prevent further impact to affected consumers.

Legal practitioners have also been notified so that they can protect the interests of their clients.

Pension arrangements are a major part of any divorce or separation, in terms of what benefits former spouses will receive in relation to death-in-service payments.

Under current law, such orders must be obtained within 12 months of a decree of divorce or separation.

If an adjustment order was received over a year ago, it cannot be varied or enforced following the death of the former spouse when the original pension has been wound down and moved into a master trust.

Second-largest asset

Pension pots are generally the second-largest asset category after the family home.

In a letter to the Pensions Authority, Law Society Director General Mark Garrett described the situation as “very serious” and said that it needed to be addressed “without delay”.

“The potential financial loss to such a beneficiary may be in the region of several hundred thousand euro,” he stated.

Pensions experts expect the vast majority of group defined-contribution pension schemes in Ireland to move into master trusts.

Mark Garrett added “This is a significant issue that had been identified through the work of the Law Society’s Family and Child Law Committee, who are the practitioners working with clients every day.

“We believe the issue is an unintended consequence that arose because of the transfer of private-sector, defined-contribution pension schemes to master trusts. We are working with the Pensions Authority to offer our assistance, including providing possible legislative solutions. We have informed the solicitors’ profession to enable them to notify their clients who may be affected.”

Contingent assets

Mason Hayes & Curran LLP pensions partner Stephen Gillick commented: “The problem concerning contingent assets in pension adjustment orders, and the loss of benefit when schemes are transitioning to master trusts, is of huge concern to all involved in the pensions industry.

“Trustees and life offices are desperate for clarity on the issue, and the Law Society’s letter to the Pensions Authority can only assist in the speedy delivery of a solution,” he said.