Personal Pensions safer from creditors

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On 17 December 2014 Mr Robert Englehart QC sitting as Deputy Judge of the High Court delivered judgment in Horton v Henry[i]. He decided that uncrystallised pensions benefits can be protected from creditors. The judge declined to follow the previous decision, of Raithatha v Williamson[ii]. Instead he held that a trustee in bankruptcy could not gain access to pensions benefits that were not already in payment.

BACKGROUND

In Horton v Henry, Mr Henry’s trustee in bankruptcy was applying for an income payments order (“IPO”) against Mr Henry’s pensions policies that had not yet vested. The bankrupt had refused to crystallise them. The trustee was seeking an order requiring Mr Henry to draw down his:

  • 25% lump sum from his self-invested personal pension (“SIPP”);
  • 36 monthly payments in flexible drawdown
  • the annuity value of his personal pensions.
  • the trustee also sought the right to vary the IPO in future, after the new pensions access provisions apply.

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DECISION

The Judge declined to make an Income Payments Order over an uncrystallised pension compelling a bankrupt of pensionable age to draw down his pension. He considered that, contrary to the reasoning in Raithatha, there was no power vested in the court pursuant to section 310 of the Insolvency Act 1986 to make an income payments order in respect of an uncrystallised pension not yet in payment. The Judge said:

‘…I have most anxiously considered the decision in Raithatha but I have, albeit with considerable reluctance, come to a different conclusion. Mr Henry is not entitled to payment under his pensions “merely by asking for payment”. There is a considerable variety of options open to him. It would only be after he had made elections that any payment would be due to him. Only then would he become entitled to any payment. I do not consider that there is any power in the court under s310 or in the trustee to require Mr Henry to elect in any particular way…’

Raithatha v Wiliamson had decided that an order could be made. That case was subject to criticism, but was not appealed because the case settled.

The Judge explained:

‘…I regret having had to reach a different conclusion from that reached in Raithatha. But it is to be hoped that the Court of Appeal will soon have the opportunity of considering which of these two first instance decisions is correct….’

It is understood that permission to appeal has been granted, and the Court of Appeal is likely to hear the appeal in the Spring 2015, which will provide an opportunity to resolve which of the conflicting approaches is correct.

IMPLICATIONS

  • Pending clarification from the Court of Appeal, a trustee in bankruptcy can’t compel a bankrupt to draw down a pension not in payment.
  • However, if a bankrupt’s pension is in payment, a trustee in bankruptcy is still entitled to seek an IPO where appropriate.

[i] [2014] EWHC 4209 (Ch); [2014] WLR (D) 551;

http://www.taxbar.com/Henry_v_Horton.pdf.pdf

[ii] [2012] 1 WLR 3559

 

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