This week we revisit the ramifications of a landmark personal insolvency case in the context of the equally ground breaking 2014 Budget which significantly increased the flexibility around accessing pension benefits. It may be that, as a result of the case and of the increased flexibility given to the members of occupational pension schemes, trustees in bankruptcy could have access to a greater part of a bankrupt’s occupational pension than has previously been the case.
In a case decided in 2012*, the court decided that where a bankrupt had a right under a personal pension scheme to draw a benefit, but had chosen not to do so, that benefit could be the subject of an income payments order (and the bankrupt could be compelled to take the benefit). Importantly, benefits which were previously believed to be beyond the reach of the trustee in bankruptcy were no longer safe.
The case itself concerned two company directors (Mr Shepherd and Mr Williamson) who were in dispute; subsequent court proceedings resulted in Mr Williamson being ordered to buy Mr Shepherd’s shares. Unable to do so, Mr Williamson was declared bankrupt in 2010. Mr Raithatha was appointed as the trustee in bankruptcy.
Six weeks before Mr Williamson was discharged from bankruptcy, Mr Raithatha applied for an income payments order** (IPO) and also for an emergency injunction preventing Mr Williamson from taking steps to draw his private pension.
Mr Williamson had not reached retirement age, being aged 59 at the time of the application. Under the terms of his personal pension, however, he had had the power to draw his personal pension from age 55. The pension benefits available to him included a tax free cash sum and an income from an annuity. He opposed the application for the IPO, stating that he did not intend to take his pension in the foreseeable future.
Despite this the High Court agreed to the application for the IPO and the injunction, rejecting the arguments of Mr Williamson. The court emphasised that keeping undrawn pension pots away from the reach of creditors would discriminate against those who had already elected to draw their pensions before entering bankruptcy.
New pensions flexibilities
George Osborne’s Budget in April 2014 transformed the pensions landscape by abolishing the requirement to access pension benefits via an annuity. From April 2015, savers will be able to access the entirety of their pension at any time after age 55, subject to tax.
Putting the two together
From April 2015, depending on the circumstances, a larger proportion of a bankrupt’s pension fund may be available to trustees in bankruptcy. If the trustees of an occupational pension scheme change the scheme rules, following the reforms, giving members the absolute right to access their pension from the minimum pension age, without trustee or employer consent, it would seem that following the logic of the above case, the trustee in bankruptcy could obtain an IPO in respect of that pension. If the pension can be drawn by the bankrupt, it follows that it can be accessed by the trustee in bankruptcy.
Experts have argued that this particular case overturns existing legislation put in place to protect the pensions of bankrupts on the basis that retirement savings should be kept separate and safe from the hands of creditors. Further court cases or legislation are sure to follow in order to clarify this area, particularly in respect of occupational pensions.
*Raithatha v Williamson  EWHC 909 (Ch)
**Under s.310 of the Insolvency Act 1986