Court Rules To Protect Bankrupts' Pensions

In an eagerly awaited decision, the Court of Appeal ruled earlier today that creditors cannot access a bankrupt's pension benefits which have not come in payment.

Where a person is made bankrupt, creditors cannot generally access the person's pension fund. The rationale for this is that the pension fund is there to support the person's retirement and allowing creditors access to it may mean the person becomes dependent on the state. This rationale has, however, been undermined by the recent freeing-up of how individuals may use their pension funds and the ability to take the full value of a fund in one or more payments from age 55. To prevent abuse of this protection, rules allow creditors to clawback excessive pension contributions which have been made with a view to sheltering them from creditors.

Although creditors may not access the full, capital value of a bankrupt's pension fund, where a pension is in payment, the court may order that some or all of the payments are applied for the benefit of creditors for up to three years but, leaving enough income for the reasonable domestic needs of the bankrupt and his family. The question that the Court of Appeal had to decide was whether creditors also have the power to bring benefits into payment - an issue which had been subject to conflicting High Court decisions. The potential for creditors to trigger the withdrawal of the full value of a fund as a single payment under the new pension freedoms gave added significance to the decision.

The court decided that creditors do not have the power to bring benefits into payment.

Comment

The ruling means...