Since the Welfare Reform and Pensions Act 1999 (“1999 Act”), it has been understood that the rights of a bankrupt under a tax approved pension plan are excluded from the bankruptcy estate and do not vest in his Trustee in Bankruptcy.

That said, where a Bankrupt was already drawing an income from his pension, his Trustee could seek an Income Payments Order over that income.

In Raithatha v Williamson [2012] the Court decided that, where a Bankrupt could draw his pension (i.e. after the age of 55) but has chosen not to, a Trustee can compel the bankrupt to take his pension and then attach it as income.

The decision has been criticised as being against public policy because it seems to render useless the statutory protection under the 1999 Act. 

However, it seems that the government has now inadvertently assisted Trustees in getting their hands on the entire pension pot!

In the 2014 Budget the government has said that  individuals can withdraw 100% of their pensions pot as cash when they reach the age of 55. At present the limit is 25%.

Does this clear the way for Trustees to argue that anyone made bankrupt (or who is still bankrupt) after the age of 55 can draw down all of their pension, thereby making those funds available to Trustees as income? It would seem so and the availability of the entire pension pot would make it harder for a Bankrupt to argue that the funds are required to pay for living expenses.

Trustees can apply for an Income Payments Order against any personal pension except trust based occupational pension schemes.  In the latter, payment of benefits is often subject to the consent of the trustees and in that case it is quite likely that the court would not consider itself able to grant an Income Payments Order. 

Also worth remembering are pre 29 May 2000 bankruptcies before statutory protection was introduced.  Where a Bankrupt’s pension vested in his Trustee before 29 May 2000, the pension remained vested in his Trustee even after the Bankrupt’s discharge.  This means the Budget changes might still be relevant to these cases.  For example, a Bankrupt age 41 in 2000 was under the age limit for drawing pension.

Income can be drawn from the pension now the Bankrupt is age 55.  Provided his Trustee has not relinquished his interest,  the pension is still vested in the Trustee and he may apply for an Income Payments Order over the income.