Bankruptcy and Pension Drawdown
Written on 10/08/2018

Excellent news for IFAs selling pensions

A bankrupt has been deemed exempt from paying out to the Bankruptcy trustees on his pension “income”. With a fund of just under £1m the bankruptcy courts might be feeling a little hard done by, as the retired Mr Henry, now bankrupt, sits on his £1m pension fund and can draw it apparently at will without prejudice to his trustees in bankruptcy – or not at all and leave it to his heirs (as is his intention.) This is excellent news for those IFAs selling the concept of investing large sums into pensions to high risk entrepreneurs.

Here is an extract from the law report:

Horton (as trustee in bankruptcy of Michael Gerard Henry) v Henry

Before Lord Justice McFarlane, Lady Justice Gloster and Sir Stanley Burnton. A pension entitlement in respect of which a bankrupt had a right to elect to draw down payment, but which he had not yet exercised, did not fall to be included in the assessment of his income and could not, therefore, be the subject of an income payments order in favour of his trustee in bankruptcy. The Court of Appeal so held when dismissing the appeal of the trustee in bankruptcy.

Under section 310 of the 1986 Act, there was no basis for concluding that a bankrupt’s contractual rights to draw down or crystallise his pension came within the definition of “income of the bankrupt”.

The language of that sub-section simply did not support a construction which characterised a pension holder’s contractual rights under his pension to elect, after reaching a certain age, to draw down, or crystallise his pension, in the form of a lump sum or income payments, as “payment in the nature of income” which was “from time to time made to him or to which he from time to time becomes entitled”.

Nuff said. Time to do some work.

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