Rogers & Norton News

Tax & Estate Planning

Is your Pension Safe?

Wednesday, December 14, 2016

For a while now there has been some uncertainty about the Trustee in Bankruptcy rights in relation to the pension of a Bankrupt, in fact since well before the Enterprise Act 2002 was implemented. As Peter Hastings recalls, the issue of pensions was a hot topic in the 90s. “I recall twenty years ago, seeking to recover monies from a pension scheme for a High Street Bank. The Court found in my client’s favour much to the dismay of their customer, the Defendant, who then referred the case to one the Sunday papers. Their report was, as one would expect very sympathetic to the customer, which was understandable, and of course with recessions and financial crises, attitudes have changed. The position on Pensions has largely been clarified especially now that it is possible to drawdown a pension before the retirement date.”

The Trustee in Bankruptcy of Michael Henry was refused an order against any income or lump sum that Henry might in future draw down from his personal pension policies.  Robert Horton was appointed trustee in bankruptcy and sought control of Mr Henry’s remaining assets when he declared himself bankrupt in 2012. The assets included a large amount of money in various pension funds, which now he is of retirement age he is entitled to draw upon.

Mr Henry has not yet begun to draw pension benefits, and currently does not need to as he is supported financially by his wife and family. It is important to him though that he preserves the pension funds for his children after his death, rather than them being handed over to his creditors. The right to do so was being challenged by his trustee.

Section eleven (1) of the Welfare Reform and Pensions Act 1999, supports Mr Henry’s assertion – it states that any rights a bankrupt has under an approved pension scheme are excluded from his estate, this means that a trustee in bankruptcy in general cannot touch a bankrupt’s pension assets. Horton’s case relies on an exception to this rule, set out in section 10 of the Insolvency Act 1986. This allows a trustee in bankruptcy to apply for a court order giving him access to any part of the undischarged bankrupt’s income over what is required to meet the ‘reasonable domestic needs’ of the bankrupt and his family.

The question was whether section 310 permitted such an order to be made in respect of a pension which is not yet being paid, but the bankrupt will be eligible and entitled to receive. Until recently it was thought that it did not, but the decision in the case of Raithatha v Williamson (2012 EWHC 909 Ch) found otherwise.

On Appeal, the Court rejected the Trustee’s application. Peter Hastings concludes “This is an important ruling, and confirms that an approved pension not in payment is safe from the hands of a trustee in bankruptcy and is available for distribution between the parties. That assumption is now upheld. If Horton had succeeded, an undischarged bankrupt over retirement age could suddenly have found himself forced to draw substantially on his pension assets for the benefit of his creditors”.

If you are in need of advice or guidance on this matter then contact Peter Hastings at or phone him on 01603 675639.