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
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
The court decided that creditors do not have the power to bring
benefits into payment.
The ruling means that creditors' access to a bankrupt's
pension fund remains a matter of pot luck, depending on whether the
person has started their pension. The new pension freedoms mean the
ruling has serious implications for creditors as individuals are
increasingly likely to dip into their pension fund for ad hoc
payments or, leave it untouched for their dependants to inherit,
rather than sign-up for regular annuity payments which creditors
can access. Even had the ruling gone the other way, creditors'
rights would still depend on the age of the bankrupt as pensions
funds cannot normally be accessed before age 55. With a pension
fund often being one of a bankrupt's most valuable assets, it
seems time for the Government to review whether, in light of the
new pension freedoms, the pendulum has swung too far in favour of
bankrupts and consider whether it would be more appropriate for
creditors' rights to access pension funds to be based more on
the capital value of a bankrupt's fund and their ability to
build-up new retirement savings.
Horton v Henry – Court of Appeal – 7 October 2016
(2016 EWCA Civ 989)
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