Judge Rules Bankrupt Pension Grab Is Unfair

The rights of creditors grabbing a slice of a pension of someone who is bankrupt to repay their debts have been thrown into doubt.

The confusion involves the status of a pension fund held by a bankrupt.

In 2012, a court ruled that bankruptcy trustees could apply for an income payment order against a pension that was not already paying benefits.

However, in the latest case Deputy Judge Robert Englehart disagreed and argued that an order could be put against a pension in payment, but as the value of a pension that was not in payment was unpredictable, it was unfair to make the order.

The judge agreed his ruling would cause legal argument, but explained the law was unclear on the matter and that the Court of Appeal was the right place to consider how to proceed.

Confusing rules

Lawyers agree the law was in place to protect bankrupts who had pension savings that they were not drawing against – but acknowledged that bankrupts could ring fence their pension cash by deferring taking payments from their retirement savings.

The previous ruling effectively allowed bankruptcy trustees to force debtors to take their pension if they could so some of the cash could be diverted to their creditors.

Englehart felt that different rules should apply to pensions that were paying out and those that are not.

The reason behind his decision was he could not see how to fairly put a price on a fund that could still rise or fall in value due to fluctuations in the value of underlying investments.

Significant savings

However, once a retirement saver starts drawing on a pension, the fund value is set and can be assessed on the amount of income it produces.

In the case before him, the bankrupt Michael Henry had several pensions, including a SiPP in which he had placed a significant sum for his children to inherit.

The judge ruled that until Henry had made elections about the treatment of his pension investments, no one could predict what his income might be from his savings and that the law gave the courts no power to force him to make any elections.

Now, the latest ruling is binding on courts until the case is decided at the Court of Appeal. If the matter does not go to appeal, then the current ruling stands.

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