Could the new AIB split mortgage be illegal?

In the Sunday Business Post yesterday an article appeared which explained the new AIB split mortgage deal. We sought details of this from AIB but only scant ones were provided which we posted already.

How it works in money terms was not disclosed by AIB but they equally didn’t retract any statements showing up in the press so we can assume that the information published is correct as they haven’t publicly retracted any aspect of how it has been covered. For that reason there was an aspect to this which we see as being of grave concern.

However, if Mary and Tom get a pension lump sum at retirement, they must use this towards paying down tranche B. This only applies to pension lump sums and doesn’t apply to any other lump sums a person may receive e.g. inheritance, bonus payments, gifts, lotto win etc. On this matter it is always advisable to seek professional pension advice.

Read the highlighted parts again, ‘they must use’ the lump sum to clear the debt, not other lump sums, just the pension one. That has the hallmarks of ‘assignment’ which is not legal with pensions. You can’t sell your own retirement down the river – which is a good thing, it often protects people from making decisions that might otherwise make them poor later in life.

That a person might do this of their own volition is one thing, for that you don’t need professional advice, the added contingency of ‘seek professional advice’ makes it out that this is indeed something that is binding.

This was a concern for people seeking insolvency (pensions are factored in if you retire while insolvent but are otherwise mainly protected), and equally it should be a concern for people getting mortgage forbearance.

Our suspicion is that either this statement is factually incorrect or that there is a request being made to people who sign up for it that is not legal.

There are cases specifically looking at the area of assignment not being possible, one in 2012 was EBS Building Society v Thomas Hefferon & Michael Kearns (see Arthur Cox note on same) in this case the courts found that the pension funds were established under irrevocable trusts for the sole purpose of providing retirement benefits and had been approved by the Revenue Commissioners for this purpose. The court also noted that the terms of the pension deed expressly prohibited the assignment of benefits from the pension funds themselves.

William Fry solicitors also had a note: Under a non-pension trust arrangement a beneficiary who did not disclaim a benefit from a trust would be entitled to assign his interest for value.However the Revenue Commissioner’s requirements in respect of pension trusts prohibit any assignment, in whole or in part, of a pension. Therefore it is also not open to a member to assign any of his interest in his pension.

As professional advisors we would therefore state that we don’t think anybody should promise away their pension lump sum, it’s bad financial planning, contrary to best advice and in all likelihood not even legal.





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