Pensions of bankrupts

I strongly recommend a read of the article in the Law Society Gazette on 13th April 2015  www.lawgazette.co.uk

The article highlights the conflicting legal cases over the pension bankrupt.

The issue is whether a pension which has not yet  been drawn down by a bankrupt, but which he is able to draw down, if he wants to, is ‘in the nature of income… to which he from time to time becomes entitled’ for the purposes of an income payments order (IPO). And IPO is an order obtained by the trustee to take all a part of the bankrupt’s income.

Most pensions are excluded from the estate of a bankrupt

However, income from a pension can potentially be the subject of an IPO, as the Insolvency Act 1986 expressly includes  any payment under a pension scheme. It is therefore clear that a pension in payment can be the subject of an IPO, and that a pension which the bankrupt has no entitlement to draw down cannot e.g. because he’s not reach retirement age

The grey area is a pension which the bankrupt could choose to draw down, but has not chosen to do so. Can that income be accessed for the benefit of creditors?

In Raithatha the judge said that: ‘The proper interpretation… is that a bankrupt does have an entitlement to a payment under a pension scheme not only where the scheme is in payment of benefit but also where, under the rules of the scheme, he would be entitled to payment merely by asking for payment.’

This decision was controversial and gave rise to practical problem, and begs the question: ‘Payment of what? Where there is more than one option, which option? How  would the judge determine that?

 

There is another case goes the other way. In Horton v Henry the judge said that the word ‘entitled’ suggests a reference to a pension in payment under which definite amounts have become contractually payable.

Section 310 does not give the court power to decide how a bankrupt should exercise his election(s), nor does the trustee have that power – that would be inconsistent with the 1999 act. Accordingly, he declined to follow Raithatha.

The result is two directly conflicting decisions. If you have a problem of a bankruptcy and a pension contact the experts Hylton-Potts. We have a 24-hour legal emails service on [email protected] And an office hours telephone service on 020 7381 8111

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