How Safe Is Your Pension From Creditors

Is your pension as safe as you think it is? Our Head of International Pensions Bethell Codrington looks at a recent ruling and its knock-on effects to the industry.

Until the decision in Raithatha v Williamson, it had generally been assumed that an undrawn pension could not be caught by an Income Payments Order (IPO) and was therefore effectively beyond the reach of a Trustee in Bankruptcy (TIB). The principal issue in the Raithatha case was whether an IPO can be used by a TIB to secure monies from a pension scheme; which a bankrupt is entitled to but had elected not to draw.

Facts

The bankruptcy order was made on 9 November 2010. 6 weeks before the bankrupt was discharged from bankruptcy the TIB made a without notice application for an injunction to restrain the respondent "from taking any steps to activate, draw down, dispose of, or otherwise howsoever exercise or deal with any of his rights, interests or entitlements, whether to the payment of a lump sum and/or income, arising under any pension scheme of which he is a member or in which he has an interest". Under the terms of the pension scheme the bankrupt was entitled to take his pension at the age of 55. At which time he was entitled to a tax free lump sum plus a pension from the residuary fund. The bankrupt was 59 years old at the time of the application, in employment and had no intention to exercise his right to elect to take a pension now. The TIB applied for an IPO and asked for the IPO to cover the bankrupt's undrawn pension Held

The court decided that an IPO could be made in respect of the undrawn pension; as a bankrupt has an entitlement to a pension if he could receive one merely by asking for it. In reaching this decision Deputy Judge Livesey QC considered that the government was unlikely to have intended to create an anomaly between bankrupts who had decided to draw their pensions before bankruptcy and those who had not; as to do so would be discriminatory against creditors in favour of a class of bankrupts' i.e. those who happened not to have made an election to take their pension.

In making the decision, the court also rejected the argument that income had to consist of periodic or regular payments and concluded that there was nothing to prevent a one off payment or a number of one off payments on different occasions from different sources as a result of different entitlements being classed as income for the purposes of an IPO.

Implications for TIB

Clearly, this recent...