Raithatha v Williamson [2012] EWHC 909 (Ch) (4 April 2012)

The High Court has held that a bankrupt’s right to draw a pension may be subject to an income payments order (“IPO”) even if the individual has yet to draw his pension. This judgement represents a significant departure from previous practice under the Welfare Reform and Pensions Act 1999 (WRPA 1999) which protected future pension rights from IPOs and distinguished them from pensions in payment. It also effectively allows a trustee in bankruptcy to compel a bankrupt to draw pension against his wishes.

Facts

The applicant, a bankrupt, opposed an IPO application from the respondent, his trustee in bankruptcy on the grounds that his undrawn personal pension scheme benefits were not income for the purposes of section 310(7) of the Insolvency Act 1986 (“IA 1986”) and therefore could not be subject to an IPO. While the applicant was entitled to draw his pension under the scheme rules, he had not yet elected to do so. He argued that until he elected to draw his pension, he is not ‘entitled’ to the payments and he is not receiving any pension income which may be subject to an IPO.

The applicant also argued that any potential lump sum payment could never be subject to an IPO, as the legislation only applied to periodical payments.

Judgement

The court ruled that both undrawn pension and any lump sum payment would both constitute income for the purposes of s310(7) IA 1986 and were subject an IPO.

Implications of the judgement

The decision in Raithatha v Williamson expands the scope for a trustee in bankruptcy to use section 310(7) to gain access to an individual’s pension rights. It means a bankrupt may be compelled to draw a pension which the bankrupt has become “entitled” to draw, in order to comply with an IPO.

The decision seems to contradict WRPA 1999, which aimed to distinguish future pension rights from pensions in payment. Before WRPA 1999, pension schemes were able to include provisions in their rules to prevent pension assets from being swallowed up in bankruptcy proceedings. The result is that personal pension schemes no longer have either form of protection. Many may criticise this approach and the applicant has been granted leave to appeal the decision.

As yet, rights under occupational schemes should be unaffected by this decision as they are protected under section 91 of the Pensions Act 1995.  However, this decision may encourage trustees in bankruptcy to test the limits of section 310(7) in relation to occupational schemes. In particular, a trustee in bankruptcy may be tempted to apply this decision to rights under an occupational scheme where the member has already reached Normal Retirement Date and therefore entitled to, but has not yet opted to, draw their pension.