The Court of Appeal is set to rule on a landmark case which will establish definitive legal precedent as to whether a trustee in a bankruptcy can access an individual’s uncrystallised pension pot to pay off creditors, following conflicting High Court judgements in the past two years.
Whichever way judges decide the case, the ruling will have huge ramifications particularly given forthcoming changes to pension access rules in April, which could open up 100 per cent of a pension pot to creditors once an individual hits age 55.
The appeal relates to a ruling in the High Court earlier this month, reported by FTAdviser, which in contrast to a similar case heard in 2012 found the court had no power to grant an income order to bankruptcy trustee Robert Horton, to claim against the untapped pension fund of Michael Henry.
Specifically deputy judge Robert Englehart said to do so would require the court to direct Mr Henry on when and how to claim his pension entitlements, which he argued was beyond its remit.
Mr Horton was seeking an order requiring Mr Henry to take the 25 per cent lump sum he was entitled to claim from his self-invested personal pension, together with 36 monthly payments in flexible drawdown and annuity income, to pay debts of £387,000.
The trustee also wanted the right to apply for a variation of the income payments order once the new pension flexibilities are in place in April, meaning that Mr Henry could lose a substantial part of his pension.
Mr Horton has now said he will appeal the decision, according to solicitors acting for Mr Henry.
If the Court of Appeal overturns the ruling, it will have significant consequences for those facing bankruptcy who have not yet tapped into their pension funds but are entitled to do so. From April, these people could legitimately be said to be entitled to withdraw their whole fund, meaning 100 per cent of their retirement savings could be subject to an order.
A previous High Court ruling in the case of Raithatha v Williamson in April 2012, gave 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.
Some experts said at the time they expected the case to be overturned on appeal, but it remained untested as the parties eventually reached an out-of-court settlement.
Deborah Clark from law firm Mills and Reeve, which is are representing Mr Henry, said: “If this appeal were to succeed, it would have huge ramifications. The trustee in bankruptcy will be able to force the individual concerned to draw the entire contents of their pension policies to pay creditors.
“We hope the case will go before the Court of Appeal later this year.”
peter.walker@ft.com
