High Court ruling shields pensions from bankruptcy


Bankrupt pension savers may have their pension pots protected from creditors after a recent High Court ruling.

In Hinton v Wotherspoon last month the High Court agreed with the verdict in an early case – Horton v Henry – which established that the existence of drawdown funds did not mean they were liable to an Income Payments Order.

IPOs are made by trustee in bankruptcy cases. Since the pension freedoms there has been growing uncertainty over whether untouched pension savers are in scope of an IPO.

In 2012 in Raithatha v Williamson the High Court concluded undrawn pensions should be included in an IPO if the savers is over 55. However, Horton v Henry and now Hinton v Wotherspoon, take the opposite stance.

Horton v Henry is currently under appeal with a judgment expected soon.

AJ Bell head of platform technical Mike Morrison says: “If the Raithatha ruling became a legal precedent or the Horton judgment were reversed, it could cause serious issues for those facing bankruptcy following the introduction of the pension freedoms.

“When the Raithatha judgment was passed the maximum that could be drawn from a pension fund (so to which an individual became “entitled”) was restricted. After 6 April 2015 this was no longer the case. The whole fund could be taken using the pension freedoms and therefore the whole fund value could have been included in the IPO.

“Horton v Henry made more sense as it restricts the amount that can be included in the IPO, and this latest case also better reflects the original aim of the law.”