High Court ruling protects bankrupts’ pensions

A bankrupt has retained his pension after a High Court judge held that he should not be compelled to hand it over under an Income Payments Order (IPO).


The case of Horton v Henry could mean that bankrupts’ pensions are protected after the freedom and choice reforms that come into force in April, despite an earlier judgement opening up the full cash lump sum for insolvency claims.

In Raithatha v Williamson in 2012, a judge held that the available, but undrawn, pension of a bankrupt could be subject to an IPO on the application of a trustee in bankruptcy. This put in jeopardy the 25% that employees are currently free to withdraw.

However, in Horton v Henry, the judge held that the case of Raithatha was wrongly decided.

The High Court found that a bankrupt was not entitled to any payment in the nature of income from their pension until they elected to draw it.

The judge said that before electing to draw their pension, all the bankrupt had was a right, under an approved pension arrangement, to make that election.

The court had no power to compel them to withdraw their pensions. It was also held that a lump sum could never constitute a payment in the nature of income.

Robin Davis, consultant and employment specialist at Bray and Krais Solicitors, said: “From April of this year workers will be free to withdraw 100% of their pension pot.

“The effect of the change will mean that, for affected schemes, there will no longer be a distinction between the member’s pension and lump sums, making even a relatively small pension fund an attractive target for an IPO.”

Patrick Cook, a partner at law firm Burges Salmon, added: “The immediate upshot of the decision is that the uncrystallised pension pots of a bankrupt are under a lesser threat than they were after Raithatha.

“The chances of a bankrupt being forced to draw down on a pension, which is not yet in payment have been reduced.

“However, the decision in Horton is a direct contradiction of Raithatha at the same level of authority. Clarity in the law will be delayed until the Court of Appeal hears the case in the spring.”