A high court ruling has thrown the sanctity of pensions into question

What happened?

A controversial ruling could mean that bankrupt people may have to access their pensions to pay off their debts.

The high court made a controversial ruling about accessing a bankrupt person’s pension in December 2014. The court said it could not force the bankrupt person, Mr Henry, to access his pension to pay off debts of almost £400,000.

The trustee resolving Mr Henry’s financial affairs (Mr Horton) in Horton v Henry was hoping the court would approve a similar income payments order (IPO), which would allow him to access a 25% lump sum from Mr Henry’s self-invested personal pension (which is the maximum allowed under current tax law).

The trustee also wanted to be allowed to vary the IPO in April when the new pensions flexibilities come in, so Mr Henry could be required to draw down a greater proportion of his pension to plug his debts.   

This decision directly contradicted the well-known 2012 case of Raithatha v Williamson. Before that case was heard, it was generally assumed that a pension which had not yet been accessed fell outside the scope of an IPO which would force a bankrupt person to use that money to fund their debts.

However, the high court in that case held that an IPO could cover an undrawn pension because the bankrupt person had an “entitlement” to the pension if he could receive it just by asking for it.

Mr Horton has now announced his intention to appeal the ruling in his case to see if he can reach a similar outcome in the Court of Appeal.

What does that mean?

At the moment, the law relating to a bankrupt person’s pension is unclear. An appeal would clarify the legal position.

If the appeal is allowed, this would mean that any bankrupt person who has reached the age where they would be entitled to draw down their pension could be legally required to access it.

If that were to happen they could stand to lose a substantial proportion of their retirement provision thanks to the changes being introduced in April.

What next?

The Court of Appeal is due to hear Mr Horton’s appeal later this year – at the moment it is aiming for a date between May and July, but it is too early to say exactly when.

“If the appeal is successful this will have massive ramifications – particularly for bankrupts over the age of 55 with DC benefits, who will, in theory, be forced to draw their entire pension pots from April next year given the new flexibilities,” says Clare Grice, a partner at law firm Mills & Reev