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Court of Appeal dismisses appeal in Horton v Henry

The issue: to what extent can a pension not yet in payment be taken into account on an application for an income payments order?

The Court of Appeal has handed down judgment in Horton (as Trustee in Bankruptcy of Michael Gerard Henry) v Henry, dismissing the appeal brought by Mr Horton against the High Court decision dated 17 December 2014.

Previously it had been held that there was no power to require a bankrupt to elect to draw down his pension within the context of an application for an income payments order under section 310 Insolvency Act 1986.

The Court of Appeal has now confirmed that a bankrupt’s pension pot is an asset which is excluded from the bankruptcy estate, and that income to which the bankrupt is “entitled” only applies to a pension which is in payment. A Trustee has no power to compel a bankrupt to draw down all or part of a pension.

What are the implications of the decision?

A large number of applications for income payments orders were stayed pending the appeal in Horton. The decision means that those cases can now be progressed (or withdrawn, as the case may be!)

In dismissing the appeal, the Court of Appeal has confirmed what was always thought to be the position before the decision in Raithatha, because of the policy reasons behind section 11 of the Welfare Reform and Pensions Act 1999. The decision is likely to deter creditors from presenting a petition for a debtor’s bankruptcy where they are aware that the debtor has few assets but have their sights set upon valuable pension policies.

The decision is also important in the light of changes introduced by the Taxation of Pensions Act 2014. These changes allow members of defined contribution schemes aged 55 or over (or those who satisfy an ill health condition) to draw down their entire pension pot as cash (whereas a lump sum payment was previously limited to 25% of the fund value) and removes the requirement to purchase an annuity. The concern was, relying on Raithatha, a Trustee could have required a bankrupt to elect to draw down the lesser of their fund value or an amount sufficient to pay the debts and expenses of the bankruptcy in full, potentially leaving the bankrupt with nothing in retirement.

Debtors can now be confident in planning for their retirement without the risk that their pension pot may be claimed by the Trustee if they are adjudged bankrupt. The exception being where they have made excessive contributions to a pension, which are challengeable under section 342A of the Insolvency Act 1986.

Disclaimer: This article is not intended to constitute legal advice.  For legal advice in connection with the above, please contact us directly.

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