Personal Pension  

Pension access to prevent bankruptcy orders

Pension access to prevent bankruptcy orders

Individuals will be prevented from applying for bankruptcy or a ‘debt relief order’ after next week if they have a pension which could clear their debts and that they are legally entitled to access, according to new guidance issued by the government Insolvency Service.

It has published new guidelines to help advisers and official receivers, following a well-publicised case last year in relation to access to pension savings, which is currently being appealed.

In light of the decision in Horton v Henry late last year, pending the consideration of that decision by the Court of Appeal, the service has confirmed that trustees are not able to apply to access an untouched pension using an income payments order

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An earlier ruling suggested trustees could seek income from any pension an individual applying for bankruptcy is eligible to claim; from April this would be 100 per cent of the fund. The appeal will establish definitive legal precedent after this original case was settled out of court.

However, under the new guidelines a person will be considered ineligible to apply for bankruptcy where they are over 55 and have access to their pension, even where this is not drawn.

This will apply to individuals who are unable to pay their debts and are eligible to petition for their own bankruptcy or apply for a debt relief order, in cases where after taxes and charges the fund could clear the debts.

A spokesperson for the Insolvency Service told FTAdviser: “This is a preventative measure to avoid the necessity of the official receiver having to take action to revoke [an order] it later transpires should not have been made in circumstances where the debtor did not meet the insolvency criteria.”

He added: “Where a bankruptcy order had been made... the official receiver should consider whether it would be appropriate to seek an annulment... as the debtor was not insolvent.”

Elsewhere the service states official receivers should challenge payments made into a pension scheme “where such payments were to the detriment of creditors”, adding this is particularly important where the individual holds a self-invested pension whose main asset is property.

Mike Morrison, head of platform technical at AJ Bell, said he was surprised that the service had sent out this update, given that the case is pending appeal and could potentially still go against the guidance given.

The Insolvency Service responded that it will review the guidance when the court has issued their judgment on the appeal.

“Given that the judgment in Horton v Henry conflicted with the earlier case of Raithatha v Williamson and that both judgments were in the High Court, we think that guidance as to how official receivers will deal with pensions is helpful.”