High Court ruling may protect bankrupts? pensions after freedoms take effect

15 January 2015

A man in bankruptcy has retained his personal pension after a High Court judge decided he should not be compelled to hand it over under an Income Payments Order.

ProfessionalAdviser has provided an interesting summary about this ruling.

The landmark ruling could mean bankrupts' pensions are protected after ‘freedom and choice' takes effect in April despite an earlier judgement opening up the full cash lump sum for insolvency claims.

In Raithatha v Williamson in 2012, a judge held that a bankrupt of pensionable age could be forced to draw their 25% tax-free lump sum and give it over to trustees in a bankruptcy.However, the judge in this latest case - Horton v Henry - ruled that even though a bankrupt aged 55 or over was entitled to access their pension, they were not obliged to draw it for the purposes of an Income Payments Order (IPO).

Ashfords associate Stephen Young said: "A lot of insolvency practitioners got excited when George Osborne gave his pension announcement in last year's Budget.

"If Raithatha was good law, it would have followed that there seemed to be no reason why a trustee couldn't also apply to a court to compel a bankrupt to draw down their pension in one lump sum and therefore pay the whole pension into the bankruptcy.

"In effect, the proposed reforms meant we could have been heading back to the future to the days pre the Welfare Reform & Pensions Act 1999 when an individual's rights in a pension constituted an asset of the bankruptcy."