The recent English High Court decision in Horton v Henry  EWHC 4209 (Ch) has conflicted with the earlier decision in Raithatha v Williamson  EWCA Civ. 799 and leaves the law unclear as to whether a debtor’s pension forms part of their bankruptcy estate.
A trustee in bankruptcy’s entitlement to seek an income payments order (“IPO”) in respect of a bankrupt’s income is governed by section 310 of the Insolvency Act 1986 (the “IA”). Under section 310(7) of the IA the income of a bankrupt:
‘comprises every payment in the nature of income which is from time to time made to him or to which he from time to time becomes entitled, including … (despite anything in section 11 or 12 of the Welfare Reform and Pensions Act 1999) any payment under a pension scheme…’
Section 11 of the Welfare Reform and Pensions Act 1999 (“WRPA”) provides that in a bankruptcy on a petition presented on or after 29 May 2000, the bankrupt’s pension under an approved pension scheme (s.2(1) WRPA) is excluded from their estate. Whilst the WRPA amended the definition of “income” in section 310(7) of the IA to include any payment under a pension scheme despite Section 11 WRPA (meaning that where a bankrupt received pension income, his trustee in bankruptcy could seek an IPO in respect of it), the amended legislation was silent about whether a trustee in bankruptcy might seek an IPO over income from a pension where the member had reached the age where he could require immediate payment, but had not done so.
In Raithatha v Williamson, the High Court held that (1) a bankrupt’s pension income could be the subject of an IPO even though the bankrupt had not elected to draw his pension and (2) the bankrupt’s unexercised right to draw his pension represented income for the purpose of section 310(7) of the IA.
This enabled a trustee in bankruptcy to compel a bankrupt to draw his pension and marked a significant departure from the position that pension income was effectively beyond the reach of a trustee in bankruptcy until it had become payable. The decision was appealed but the case was settled and, accordingly, the position remained untested.
In Horton v Henry, Mr Henry became bankrupt in December 2012. His assets included four pension policies (a self-invested pension policy (SIPP) and three personal pension policies). Mr Henry was entitled to draw on his pensions, but chose not to do so during his bankruptcy. On the day before Mr Henry’s discharge from bankruptcy, Mr Henry’s trustee in bankruptcy applied for an IPO seeking a share of lump sum payments and income from the pensions.
The Court held that whilst pension payments were plainly within the ambit of the definition of income set out in section 310(7) of the IA, the issue for determination was whether a pension not already in payment was income to which the bankrupt was “entitled”. On a true construction of the wording of section 310(7) of the IA (which suggests a reference to a pension in payment), a bankrupt could not be said to be “entitled” to the payment until he had elected to draw down on his pension. Further, the Court considered that the decision when to draw upon a pension was for the bankrupt and not the Court/trustee in bankruptcy to determine.
Pensions lawyers will consider the Horton v Henry case to be more in line with the spirit of the WRPA, which was to protect pensions in bankruptcy scenarios. However, the case clearly conflicts with the decision in Raithatha v Williamson and leaves the position uncertain. Leave to appeal the decision to the Court of Appeal was, however, given and so pensions and insolvency lawyers alike will await the result of the appeal with interest.