Creditors cannot after all access a bankruptee’s uncrystallised pension to pay down debts, according to a fresh High Court decision which has thrown case law into limbo following an earlier landmark decision opening the door to untapped funds.
Deputy Judge Robert Englehart ruled the court did not have the power to force an income payments order on bankrupt Michael Henry to recover debts of £387,075 from his uncrystallised self-invested and other personal pensions, saying this was beyond the power of the court.
The judge stated that he was forced to consider the previous Raithatha v Williamson case from April 2012.
In that landmark decision, a ruling in the High Court gave a bankruptcy trustee Situl Devji Raithatha the right to claim against Michael Roy Williamson’s £1m pension fund to repay creditors, as he was entitled to begin drawing on his pension.
In that case the Court concluded there was no logical reason why there should be a distinction between a bankrupt who had drawn down his pension and was caught under the legislation and one who could draw but had not done so.
While the case was expected to be overturned on appeal, it was settled out of court and stood as a statement of the law. According to some, with new pension freedoms coming in April this would have meant 100 per cent of a fund could become subject to an income order.
In the latest case, which was heard in December, Mr Henry had a Sipp with Suffolk Life and three personal pension policies taken out under the National Provident Association Retirement Plan and now transferred to Phoenix Life, from all of which it was impossible to get precise valuations.
His four pension policies did not form part of the bankruptcy estate, but it was money potentially payable under these policies which the trustee sought to make the basis for the IPO.
Mr Henry argued that he did not wish to crystallise his pension policies and would rather maintain his Sipp, which he plans to pass on to his children in due course.
Deputy Judge Englehart was at odds with Raithatha, saying that Mr Henry has a variety of options open to him over how or whether to take an income and that it was beyond the power of the court to direct him so that it can effect the order.
He stated: “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 section 310... to require Mr Henry to elect in any particular way.”
The conclusion of the case read: “[I]t 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.”
Mike Morrison, head of pensions technical at AJ Bell, told FTAdviser that we are now in a state of limbo awaiting some definitive guidance from the Court of Appeal.
Mr Morrison questioned whether a trustee in bankruptcy could make an income payment order on the maximum that could have been drawn but was not, would this extend beyond the maximum annuity or drawdown payment to the whole fund which could be drawn as income from April.
“The original public policy of the Welfare Reform and Property act was to shelter people’s retirement money; could people now use the pension scheme exemption to shelter any money made the came from theft or fraud or misrepresentation?”
peter.walker@ft.com
