The Court of Appeal has today rejected a case which could have forced people facing bankruptcy to cash in their pensions to pay off their debts.
The case – Horton v Henry – looked at whether undrawn pensions were subject to Income Payments Orders, which compel bankrupt individuals to pay a proportion of their income towards their outstanding debts.
When the case was first heard in December 2014 the judge ruled undrawn pension funds, including lump sums, could not be claimed by creditors in the event of bankruptcy.
Had today’s appeal been successful, anyone over 55 who declared bankruptcy could have been forced to draw their pension, whether they wanted to or not.
Mike Morrison, pensions expert at AJ Bell says: “The pension freedoms fundamentally changed the way savers can spend their retirement pot.
“As a result, someone aged 55 or over facing bankruptcy could also have been forced to cash in their pension savings where an Income Payments Order was issued – whether they liked it or not.
“This would have added pension pain to financial misery, and anyone in this position should be able to breathe easier in the knowledge the UK legal system appears to acknowledge pensions should be out of the reach of a bankruptcy trustee.”
A separate legal case (Hinton v Wotherspoon) set a similar precedent in protecting bankrupt pensioners who are in drawdown schemes but not taking any money from their pensions.