Court of Appeal judgment: pensions are protected in bankruptcy

Published by James Jones-Tinsley on

A recent Court of Appeal judgment has brought much-needed clarity to the area of pensions and bankruptcy, by upholding a High Court ruling on a case that contradicted a ruling on a similar case a few years earlier.
"The introduction of the ‘pension freedoms’ in April 2015 threatened to give the TIB access to the whole of a bankrupt’s pension fund through an IPO, which is why clarity was sought, following the contradictory ruling in the Horton case."

On 7 October 2016, the Court of Appeal upheld an earlier High Court ruling on Horton v Henry [2014], which stated that where a bankrupt individual has acquired a right to draw benefits from their pension scheme - but has not yet done so;

  • their rights under the pension scheme are not ’income’ over which a court can make an income payments order (IPO); and, as a result
  • the trustee in bankruptcy (TIB) cannot force the member to draw their benefits

Prior to the Court of Appeal judgement, the High Court had given contradictory rulings on two separate legal cases, which had caused uncertainty within the pensions industry.

In the Raithatha v Williamson case of 2012, the High Court held that the TIB could obtain an IPO against individuals - aged 55 or over - with uncrystallised pension funds; thereby facilitating access to those funds for the benefit of the bankrupt’s creditors.

Under pension legislation at the time, however, the bankrupt was required to purchase an annuity with their pension fund, so limiting the amount of income received by them, during the bankruptcy period.

However, the introduction of the ‘pension freedoms’ in April 2015 threatened to give the TIB access to the whole of a bankrupt’s pension fund through an IPO, which is why clarity was sought, following the contradictory ruling in the Horton case.

That clarity came via an appeal to the Court of Appeal, who had to decide whether a bankrupt is ‘entitled’ to ’income’ for the purposes of making an IPO under section 310 of the Insolvency Act 1986, where the bankrupt had a right to receive their benefits from a pension scheme, but had not yet exercised that right.

The Court of Appeal decided that the bankrupt is not entitled to income in these circumstances, and that the TIB could not compel them to draw their benefits, as to do so would, in the words of the judgment, “…drive a coach and horses” through the protection that insolvency and pensions legislation give to a bankrupt’s pension rights.


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