Landmark Horton v Henry case rules that pension pots safe from bankruptcy
Savers facing bankruptcy should not be forced to cash in their pensions to pay off outstanding debts following a UK Court of Appeal ruling.
As previously reported, the landmark case – Horton v Henry – centred on whether a bankrupt individual who is subject to an Income Payments Order (IPO) can be forced to withdraw some or all of their pension rights to pay off their debt. A person subject to an IPO is required to pay a proportion of their income – usually salary or wages – to the bankruptcy trustee.
Horton v Henry was originally heard in December 2014, when the judge decided there was no entitlement to undrawn funds in a pension in the event of bankruptcy, meaning they could not be caught under an IPO. The same principle also applied to lump sum rights.
The ruling ran counter to Raithatha v Williamson, a case heard in 2012 where the court held that individuals with pensions that had not been crystallised could be forced to take them under an IPO.
If that ruling had set a precedent, people aged 55 or over facing bankruptcy proceedings could have potentially been forced to draw their pension whether they wanted to or not.
However, the Court of Appeal has dismissed an appeal against the Horton v Henry ruling.
This followed a ruling in a separate case – Hinton v Wotherspoon – which had not only backed the original Horton vs Henry ruling but also ruled that those in drawdown but not taking any income could not be forced to start taking any.
As a result of the changes
AJ Bell pensions specialist Mike Morrison said that the recent changes to pension pot rules had left individuals facing bankruptcy open to further woes and that the welcomed the Court of Appeal ruling. “The pension freedoms fundamentally changed the way savers can spend their retirement pot,” he said.
“As a result, if the original ruling in Raithatha v Williamson had set a precedent, someone aged 55 or over facing bankruptcy could also have been forced to cash in their pension savings where an IPO 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.”